UNIVERSITY  OF 

AT    LOS  ANGELE 


Robert   Ernest   Cowan 


PROCEEDINGS 


IN   THE   MATTER   OF 

THE    INTERPRETATION  OF  SECTION    450   OF 

THE    CIVIL    CODE    OF    CALIFORNIA. 

RELATING  TO  POLICIES  OF 

LIFE  INSURANCE, 


BEFORE 


HONORABLE     ANDREW    J.     CLUNIE, 

Insurance    Commissioner    of  the    State  of  California. 


MONDAY     AND     TUESDAY. 
JANUARY     17     AND     18.      1898. 


WOODU.AHI)   &   Co., 

San    Francisco,    Cal. 


'  t    I      let 


Lit.     etc 


M  - 


<« 


If  a  7 


erj 
en 


INDEX. 

John  Landers,  Statement 7 

H.  C.  Donnels,  Statement 14 

_       H.  C.  Donnels,  Brief 21 

g       Section  450,  Civil  Code  of  California 21 

A.  M.  Shields,  Affidavit 30 

James  Munsell,  Jr.,  Letter 32 

C.  A.  McLane,  Statement 36 

A.  B.  Forbes,  Statement 40 

James  Munsell,  Jr.,  Statement 42 

Henry  K.  Field,  Statement 46 

Alexander  G.  Hawes,  Statement 50 

.John  Landers,  Further  Statement 52 

Alexander  G.  Hawes,  Further  Statement 52 

H.  C.  Donnels.  Further  Statement 54 

C.  A.  McLane,  Further  Statement 55 

Charles  E.  Dyer,  Letter 57 

H.  M.  Phillips,  Letter 60 

John  Landers,  Further  Statement 62 

Clarence  M.  Smith,  Statement 102 

Senate  Bill  No.  378 139 

Clarence  M.  Smith.  Further  Statement , 164 

WiHiam  Thomas,  Argument 66 

Charles  S.  Wheeler,  Argument 90 

E.  J.  McCutchen,  Argument 97 

Elliott  McAllister,   Argument 101 

George  A.  Rankin,  Argument 143 

A .  L.  Rhodes,  Argument 165 

Elliott  McAllister,  Further  Argument 177 

E.  S.  Pillsbury,  Argument 179 


:5r>iS2H 


Notice  in  writing  having  been  sent  by  the  Insurance  Com- 
missioner of  California  to  the  Managers  and  Agents  of  all  Life 
Insurance  Companies  transacting  business  in  the  State  of  Cali- 
fornia, that  an  investigation  would  be  had  before  him  into  the 
terras  and  conditions  of  the  various  policies  issued  by  said 
Companies  in  California,  with  reference  to  the  application  of  the 
provisions  of  Section  450  of  the  Civil  Code  of  the  State  of  Cali- 
fornia thereto,  \vhich  investigation  would  be  commenced  oa 
Monday,  the  17th  day  of  January,  1898,  at  ten  o'clock  A.  M., 
the  following  Insurance  Companies,  represented  as  set  forth, 
appeared  at  said  day  and  hour  before  Honorable  Andrew  J. 
Clunie,  Insurance  Commissioner: 

The  Aetna  Life  Insurance  Company,  of  Hartford,  Connecticut, 
represented  by  H.  B.  Houghton,  Esq.,  Manager; 

The  Connecticut  Mutual  Life  Insurance  Company,  of  Hart- 
ford, Connecticut,  represented  by  William  Thomas,  Esq., 
Counsel; 

The  Equitable  Life  Assurance  Company,  of  New  York,  repre- 
sented by  E.  S.  Pillsbury,  Esq.,  and  F.  D.  Madison,  Esq., Counsel; 

The  Germania  Life  Insurance  Company,  represented  by  E.  J. 

McCutchen,  Esq.,  Counsel; 

The  Home  Life  Insurance  Company,  of  New  York,  repre- 
sented by  H.  C.  Donnels,  Esq.,  Cashier,  and  Elliott  McAllister, 
Esq.,  Counsel; 

The  Manhattan  Life  Insurance  Company,  of  New  York,  repre- 
sented by  John  Landers,  Esq.,  Manager; 

The  Massachusetts  Mutual  Life  Insurance  Company,  of 
Springfield,  Massachusetts,  represented  by  C.  M.  T.  Parker,  Esq., 
Manager; 

The  Mutual  Benefit  Life  Insurance  Company,  of  Newark,  New 
Jei-sey,  represented  by  James  Munsell,  Jr.,  Esq.,  Principal  Agent; 

The  Mutual  Life  Insurance  Company,  of  New  York,  repre- 
sented by  A.  B.  Forbes,  Esq.,  General  Agent,  and  William 
Thomas,  Esq.,  Counsel; 

The  New  England  Mutual  Life  Insurance  Company,  of  Boston, 
Massachusetts,  represented  by  Henry  K.  Field,  Esq.,  General 
Agent,  and  A.  L.  Phodes,  P'sq.,  Counsel; 


6 

The  New  York  Life  Insurance  Company,  represented  by 
Alexander  G.  Hawes,  Esq.,  Manager,  C.  A.  McLane,  Esq.,  Agency 
Director,  and  E.  J.  McCutchen,  Esq.,  Counsel; 

The  Northwestern  Mutual  Life  Insurance  Company,  of  Mil- 
waukee, Wisconsin,  represented  by  Clarence  M.  Smith,  Esq., 
General  Agent,  and  George  A.  Rankin,  Esq.,  Counsel; 

The  Pacific  Mutual  Life  Insurance  Company,  represented  by 
M.  B.  Kellogg,  Esq.,  Counsel; 

The  Provident  Savings  Life  Insurance  Society,  of  New  York, 
represented  by  Charles  S.  Wheeler,  Esq.,  Counsel; 

The  Union  Mutual  life  Insurance  Company,  of  Cincinnati, 
Ohio,  reiDresented  by  Eugene  F.  Bert,  Esq.,  Counsel; 

The  Washington  Life  Insurance  Company,  of  New  York,  rep- 
resented by  J.  B.  Day,  Esq.,  Manager. 

Testimony  was  given  by  the  various  ]\Ianagers  and  Agents 
present,  and  arguments  were  presented  by  Counsel,  the  proceed- 
ings in  full  being  as  hereinafter  sent  forth. 


MONDAY,  JANUARY  17,  1898;  10  A.  M. 


THE  COMMISSIONER.  AVc  will  now  proceed,  gentlemen, 
to  the  investigation  of  the  matter  m  hand.  I  will  state  to  the 
Counsel  present  that  I  have  invited  the  Managers  and  Agents  of 
the  various  Life  Insurance  Companies  to  be  present  here  to-day, 
as  I  wish  to  get  from  them  an  expression  upon  the  matter, 
especially  as  to  the  commercial  definitions  of  the  terms  used  in 
Section  450  of  the  Civil  Code  of  the  State  of  California,  and  here 
involved.  I  presume  the  proper  method  of  procedure  will  be  to 
hear  from  the  Managers  and  Agents  first,  getting  such  testimony 
bearing  upon  the  question  as  is  deemed  necessary  by  Counsel  and 
the  Commissioner,  and  then  listen  to  arguments  by  Counsel. 

MR.  McCUTCHEN.  I  think  your  Honor's  suggestion  as  to 
the  method  of  procedure  is  a  good  one.  I  for  one  would  like  to 
have  from  the  Managers  and  Agents  present  such  statements  as 
they  desire  to  make  to  your  Honor.  I  should  like  to  hear  from 
Mr.  Landers  first,  as  one  of  the  oldest  underwriters  in  Life  In- 
surance business  on  the  Coast,  if  there  is  no  objection. 

MR.  THOMAS.  I  quite  agree  with  your  Jlonor  and  Mr. 
McCutchen  as  to  the  order  of  procedure,  and  I  think  if  your 
Honor  ha?  no  other  plan  to  suggest,  we  might  begin  with  Mr. 
Landers. 

THE  COMMISSIONER.  Very  well.  We  will  hear  from 
Mr.  Landers. 


STATEMENT  OE  JOHN  LANDERS,  ESQ., 

General  Agent  of  the  Manhattan  Life  Insurance  Company,  of 

New  York. 

MR.  LANDERS.  Centlemen:  There  are  technical  terms 
used  in  Section  -150  of  the  Civil  Code  of  this  State,  the  statute 
under  consideration,  which  are  well  known  to  Insurance  men 
generally,  but  which  are  sometimes  rather  ambiguous  to  Attor- 


8 

neys.  As  the  Honorable  Commissioner  seems  somewhat  in 
doubt  as  to  the  exact  meaning  of  those  terms,  and  wants  to  hear 
from  the  Insurance  men  with  reference  to  their  interpretation, 
T  may  say  that  I  am  probably  in  a  position  to  give  him  that  in- 
formation, and  also  some  information  that  may  be  interesting 
to  the  Attorneys  present. 

As  a  basis  of  my  knowledge  of  the  technical  terms  of  Insur- 
ance, I  beg  to  state,  for  the  benefit  of  the  gentlemen  present, 
that  the  foundation  of  my  knowledge  of  Insurance  terms,  that  is, 
such  technical  terms  as  are  incorporated  in  the  application  for 
insurance  and  also  in  the  policy  issued  thereunder,  dates  back  to 
my  boyhood  days  in  the  State  of  New  York — since  June,  1855, 
or  a  period  of  nearly  forty-three  years.  With  that  experience  and 
the  knowledge  of  the  business  obtained  therefrom,  what  I  have 
to  say  in  that  direction  may  probably  have  some  weight  with  the 
Honorable  Commissioner,  and  be  entitled  to  some  respect  from 
the  Attorneys  present. 

Section  450  of  the  Civil  Code  of  the  State  of  California 
provides: 

"  Every  contract  or  policy  of  insurance  hereafter  made  by  any 
"  person  or  corporation  organized  under  the  laws  of  this  State, 
"  or  under  those  of  any  other  State  or  country,  with  and  lipon 
"  the  life  of  a  resident  of  this  State,  and  delivered  within  this 
"  State,  shall  contain,  unless  specifically  contracted  between  the 
"insurer  and  the  insured  for  tontine  insurance,  or  for  other 
"  term  or  paid-up  insurance,  a  stipulation,"  etc. 

"Tontine  insurance^'  is,  of  course,  a  specific  contract,  made 
between  the  citizen  of  the  State  and  the  insurance  corporation. 
Under  that  form  of  insurance,  it  is  provided  that,  in  the  event  of 
forfeiture,  there  is  a  waiver  on  the  part  of  the  insurer  to  any 
profits  with  reference  to  its  surplus  that  may  have  been  allotted  to 
that  class  of  policies,  and  therefore  that  provision  in  the  contract 
in  regard  to  the  deferred  dividends  that  are  paid  at  maturity,  shall 
be  forfeited  to  the  Company.  That  is  a  specific  and  absolute 
contract  that  is  entered  into  at  the  time  between  the  insured  and 
the  Company. 

MR.  McCUTCHEN.  Q.  Let  me  ask  you,  Mr.  Landers,  if 
you  do  not  mean  a  waiver  on  the  part  of  the  insured.  You  say 
"  on  the  part  of  the  insurer." 


MH.  LANDERS.  1  .should  say  on  the  part  of  the  insured, 
yes.  It  is  a  direct  waiver  on  the  part  of  the  insured.  That 
practically  disposes  of  the  t^rm  "tontine  insurance,"  and  I  be- 
lieve that  the  gentlemen,  who  are  connected  with  the  various 
Insurance  Companies  here  will  confirm  that  as  the  proper  defini- 
tion. 

In  regard  to  "paid-up  insurance,"  that  is  a  contract  between 
the  insured  and  the  insurer  for  a  given  sum  of  money  that  has 
been  paid  by  the  insured  to  the  insurer,  and  it  becomes  by  its 
terms  an  absolute  contract  between  the  insurer  and  the  Com- 
pany. Paid-up  insurance  is  made  up,  either  in  the  payment  of 
past  premiums,  where  the  policy  has  been  surrendered  for  its 
equit^able  value,  as  far  as  the  reserve  would  purchase,  in  accord- 
ance with  the  laws  of  this  State,  and  also  in  accordance 
with  the  laws  of  the  State  of  Now  York,  for  the  specified 
amount  of  the  policy.  It  is  absolute.  It  is  fixed.  It  is  deter- 
mined at  the  time,  and  there  is  nothing  more  to  be  said  or  done 
in  reference  to  the  matter  until  the  maturity  of  the  contract 
itself.  That,  I  believe,  practically  disposes  of  the  definition  of 
the  term  "paid-up  insurance"  as  Insurance  men  understand  it, 
and  as  was  the  understanding  among  Insurance  men  at  the  time 
this  law  was  passed. 

Coming  now  to  the  definition  of  the  third  term,  "term  insur- 
ance": That  is  usually  a  very  low  premium  that  is  paid  to  the 
Company  for  a  speeific  term  annually,  without  the  dividend 
feature  or  any  reserve  attachable  to  it.  In  other  words,  it  is 
simply  the  actual  cost  of  carrying  the  risk  at  a  very  low  rate,  and 
at  the  expiration  of  the  term  the  contract  is  simply  ended.  There 
is  nothing  further  to  be  granted  or  done  when  the  term  of  the 
policy  expires. 

That,  so  far  as  my  knowledge  goes,  is  a  definition  of  the  three 
terms  "tontine  insurance,"  "paid-up  insurance,"  and  "term  in- 
surance," as  I  have  it  from  my  experience  and  association  with 
the  Insurance  business. 

Section  450  of  the  Civil  Code  of  California  was  practically  a 
copy  of  the  New  York  law  upon  the  subject.  There  are  one  or 
two  slight  variations,  the  statute  here  being  a  little  more  am- 
biguous than  tliat  of  New  York.  I  rcmeml>er  that  when  the 
Insurance  Department  was  created  in  this  State,  the  laws  regu- 


10 

lating  Insurance  Companies  and  the  conduct  of  the  Insurance 
business  were  taken  aJmost  bodily  from  the  New  York  statutes 
and  incorporated  into  our  CaHfornia  statutes,  as  a  basis  of  this 
Department. 

Witii  reference  to  the  compliance  of  the  Manhattan  Life  In- 
surance Company,  of  New  York,  with  the  laws  of  this  State,  I 
beg  to  submit  a  letter,  of  which  I  have  already  furnished  you  a 
copy,  Mr.  Commission.cr,  but  I  will  read  it  for  the  benefit  of  the 
gentlemen  present.  It  is  from  the  Attorneys  of  the  Company  in 
New  York,  and  is  given  in  tlie  form  of  a  brief.     It  reads: 

"  New  York,  August  26,  1897. 
"  John  Landers,  Esq.,  Manager — 

"Dear  Sir:  Your  two  letters  of  August  17th  inst.,  with 
"  enclosure  in  each,  one  being  a  letter  addressed  to  you  by  Hon. 
"  Andrew  J.  Clunie,  Insurance  Commissioner  of  California, 
"dated  August  11th,  requesting  (1)  that  you  furnish  the  Com- 
'-'  miseioner  with  sample  copies  used  by  The  Manhattan  Life 
"  Insurance  Co.  in  California  since  July  1,  1880,  and  the 
"  other  letter  enclosing  a  co])y  of  a  written  direction  (2)  from  the 
"  Co-mmissioner,  dated  August  14th,  addressed  to  Hon.  M.  M. 
"  Eohrer,  Esq.,  Deputy  Insurance  Commissioner,  have  been  re- 
"  ferred  to  us  for  attention. 

"  In  regard  to  (1),  the  request  for  sample  copies  policies,  in- 
"  vestigation  shows  the  fact  to  be  that  a  form  book  has  been  care- 
"  fully  preserved  by  the  Company,  in  which  are  samples  of  all 
"  forms  of  policies  used  by  the  Company  since  it  commenced 
"  business,  August  1, 1850,  but  of  those  books  there  are  no  dupli- 
"  cates  nor  the  facilities  to  make  duplicates,  except  by  copying, 
"  w^hich  would  require  a  long  time  and  considerable  expense,  as 
"  they  contain  about  350  samples;  moreover,  to  comply  with  the 
"request  would  necessitate  an  examination  of  the  record  of  all 
"California  policies  written  by  tlie  Company  since  1880,  many 
"of  which  were  the  forms  of  policy  in  use  prior  to  1880,  anc^ 
"  from  time  to  time  modifications  of  the  policies  as  originally 
"written,  as  well  before  as  after  1880,  were  made  in  numerous 
"'  instances  by  the  Company  voluntarily  and  with  the  approval 
"  of,  and  to  the  advantage  of,  policy-holders,  as  the  business  pro- 
"  gressed  and  the  changes  in  the  form  of  policy  were  introduced. 


11 

*'  in  order  to  keep  pace  with  the  competition  and  usage  of  other 
"  Companies  and  the  modernized  business  of  Life  Insurance. 

"  In  regard  to  (2),  the  direction  by  the  Commissioner  to  the 
"  Deputy  Commissioner,  a  full  compliance  therewith  will  entail 
"a  much  greater  amount  of  labor,  expense,  and  interference 
"  with  the  ordinary  and  regular  conduct  of  the  Company's  busi- 
"  ness  than  a  compliance  with  the  request  (1);  and  compliance 
"  with  both  would  of  necessity  be  required  at  the  home  office,  as 
*'  your  ollicc  hos  not  the  necessary  data.  But  in  regard  to  (2), 
"  the  annual  reports  or  statements  of  the  Company,  required  by 
"  the  laws  of  California  to  be  filed,  and  with  the  requirements  of 
"  which  the  Company  has  always  complied  year  by  year  before 
"  and  since  1880,  and  which  are  on  file  in  the  Department  of  the 
"  Insu.rance  of  California,  furnish  data  which  in  substance  re- 
"  spend  to  a  very  large  part  of  the  information  inquired  for. 

"  While  no  objection  appears  to  be  taken  to  making  full  com- 
"  pliance  with  both  requests,  except  on  the  ground  of  the  labor, 
"  expense,  and  extraordinary  interference  with  the  regular  and 
"  orderly  conduct  of  the  Company's  business  which  such  com- 
"  pliance  would  entail,  we  hope  you  will  confer  with  the  Superin- 
"  tendent,  learn  his  wishes  and  the  ends  he  has  in  view,  to  the 
"end  that  the  Company  may  meet  all  his  desires  to  his  entire 
"  satisfaction  without  imposing  the  burden,  expense,  and  inter- 
"  ference  with  the  regular  course  of  business  which  a  literal  com- 
"  pliance  will  necessitate. 

"  We  also  suggest  that  you  inquire  if  the  Insurance  Depaxt- 
"ment  can  supply  us  with  the  blank  forms  which  Sections  595 
"and  615  of  the  Political  Code  of  California  seem  to  provide 
"  for  in  such  cases;  upon  what  sections  of  the  Insurance  laws  of 
"  California  the  requests  are  based;  and  if  a  recent  compilation 
"  of  your  Insurance  laws  is  to  be  had  in  his  Department,  we 
"  would  like  to  receive  a  copy. 

"  Awaiting  the  result  of  your  proposed  interview  with  the 
"  Commissioner,  and  your  reply  hereto, 
"  Yours  truly, 

'•irOLMES,  EAPALLO  c^-   KENNEDY, 

"  Counsel.'" 

There  is  another  letter,  also,  Mr.  Commissioner,  a  copy  of 
which  you  have  on  file,  and  which  I  will  read  also  for  the  in- 
formation of  the  gentlemen  present.     It  reads  as  follows: 


12 

"  New  York,  Sept.  17,  1897. 
"  John  Landers,  Esq.,  Manager — 

"  Dear  Sir:  Your  letter  of  tbe  3d,  addressed  to  the  Company, 
"  in  response  to  ours  of  August  26th,  has  been  handed  us,  and 
"  we  note  with  satisfaction  that  the  Insurance  Commissioner  has 
"  no  intention  to  embarrass  the  Company  or  put  it  to  needless 
''  expense,  but  (1)  requests  information  under  Section  450  of  the 
"  Civil  Code  of  California,  with  a  view  to  determining  if  it  has 
^'  been  evaded  or  violated  by  the  Compainy;  (2)  will  receive  and 
"  consider  a  brief  from  us  on  that  subject;  and  (3)  desires  that 
"  sample  copies  of  the  Company's  policies  in  most  general  use 
*''  in  California  be  sent. 

"  Section  450  of  the  Civil  Code  was  approved  April  26,  1880, 
*'  took  effect  sixty  days  thereafter,  and  has  been  in  force  since 
"  that  date.  It  appears  to  have  been  in  pursuance  of  the  same 
"  public  policy  which  the  State  of  New  York  adopted  by  the 
''  passage  of  a  very  similar  act  on  May  21,  1879,  which  took 
''effect  January  1,  1880  (Chap.  347,  Laws  of  1879).  These 
^'  statutory  provisions,  which  now  obtain  in  many  States,  appear 
"  to  have  been  first  adopted  in  Massachusetts  by  Chapter  186  of 
"  the  Statutes  of  1861  of  that  State. 

'  "  The  sta  tutes  of  New  York  and  of  California  are  in  substance 
"  and  effect  equivalents  of  each  other,  and  if  the  learned  Insur- 
"'^  ance  Commissioner  of  California  will  compare  the  provisions 
^'  of  those  two  statutes,  it  will  be  seen  that  if  the  Manhattan  Life 
*'  Insurance  Company  has  obeyed  the  New  York  statutes,  it  must 
"  of  necessity  have  obeyed  the  California  law  as  well,  for  while 
"  the  latter  act  related  to  'every  contract  or  policy  of  insurance 
"  '*  *  *  with  and  upon  the  life  of  a  resident  of  this  State, 
'•  'and  delivered  within  the  State  *  *  *'  the  New  York 
"law  provides:  'Whenever  any  policy  of  life  insurance  issued 
"  'after,  etc.,  etc.,'  and  included  of  necessity  every  contract  or 
'  policy  of  insurance  with  or  upon  the  life  of  a  resident  of  Cali- 
"  fomia,  or  dehvcred  within  that  State. 

"  It  follows  of  necessity  that  liy  this  Company's  obedience  to 
*'  the  positive  requirements  of  the  New  York  statutes,  which  it 
"  asserts  to  be  the  fact  and  invokes  its  records  with  the  Insur- 
"  a  nee  Department  of  New  York  in  proof  thereof,  it  conforms  to 
"and  complies  with  th6  California  statute.  '. .-. 

"  By  this  mail,  there  will  be  forwarded  to  you,  under  separat-^ 


13 


"  cover,  samples  of  editions  of  the  former  ]X)licies  in  most  general 
"  use  by  it  among  its  California  patrons,  o-f  which  we  enclose  a 
"  schedule. 

"  Yours  truly, 

"HOLMES,  RAPALLO   &  KENNEDY, 

"  Counsel." 

I  think,  Mr.  Commissioner,  that  is  all  I  have  to  say  at  present. 


MR.  THOMAS.  As  there  is  no  particular  order  of  procedure 
prescribed,  Mr.  Commissioner,  I  would  like  to  ask  that  Mr. 
Donnels  now  read  to  your  Honor  a  paper  which  he  has  prepared 
upon  the  construction  to  be  placed  upon  the  three  terms  in 
section  of  the  Civil  Code  of  California  now  under  consideration. 
I  think  we  all  rely  upon  the  definitions  which  he  has  given  in 
his  brief,  and  it  should  be  read  to  your  Honor. 

MR.  McCUTCHEN.  I  should  be  glad,  upon  the  part  of  the 
Companies  I  represent,  to  have  Mr.  Donnels'  brief  or  statement 
considered  as  a  part  of  my  argument. 

THE  COMMISSIONER.  Is  it  not  the  better  plan  for  you 
gentlemen  to  interrogate  Mr.  Donnels?  His  brief  can  be  con- 
sidered a  part  of  the  record  as  well. 

MR.  RANKIN.  I  think  we  should  have  Mr.  Donnels'  version 
of  those  terms  in  answer  to  interrogatories  as  well  as  by  brief. 

MVl.  THOMAS.  I  would  like  then  to  put  a  few  questions  to 
Mr.  Forbes,  of  the  Mutual  Life  of  New  York,  as  to  whether  ton- 
tine insurance  is  ever  term  insurance,  and  whether  paid-up  in- 
surance is  ever  an  original  contract. 

THE  COMMISSIONER.  Very  well.  Mr.  Forbes  is  present, 
and,  if  you  desire,  you  may  proceed  to  examine  him  now. 

MR.  RHODES.  Suppose  we  ask  ^Ir.  Landers  what  the  con- 
ditions are  of  the  policies  issued  by  the  Manhattan  Life  Insur- 
ance Company? 

MR.  McCUTCHEN.  With  reference  to  Mr.  Landers'  policies, 
they  are  issued  under  the  New  York  laws,  and  comply  with  them. 
I  have  no  doubt  the  Commissioner  is  familiar  with  the  statutes 
of  New  York  upon  the  subject. 

THE  COI\LMISSIONER.  1  will  state  to  all  the  gentlemen 
present  that  I  propose  to  go  carefully  through  all  of  the  policies 


1* 

of  each  and  every  Company  doing  business  in  this  State,  before 
I  come  to  any  decision  in  this  matter. 

MR.  THOMxVS.  I  would  like  to  interrogate  Mr.  Forbes  last, 
if  your  Honor  is  agreeable  to  that  method  of  procedure,  and 
there  is  no  objection  on  the  part  of  any  one,  particularly  for  the 
reason  that  the  Mutual  Life  Insurance  Company  ^f  New  York 
issues  no  tontine  policies  whatever.  As  Mr.  Forbes  does  not 
know  from  his  own  experience  in  business  what  that  form  of 
insurance  is,  I  would  not  care  to  interrogate  him  as  to  what  it  is. 

THE  COM.MISSIONER.  Very  well.  That  may  be  as  you 
desire. 

MR.  RANKIN.  I  would  suggest,  then,  Mr.  Commissioner, 
that  Mr.  McCutchen  now  interrogate  Mr.  Donnels  as  to  what 
tontine,  term,  and  paid-up  policies  are. 

MR.  :\rcCUTCHEN.     Very  well.     I  will  do  so. 


STATEMENT   OF   H.   C.   DONNELS,  ESQ., 
Cashier  of  the  Home  Life  Insurance  Company  of  New  York 

MR.  :\[cCUTCHEN.  Q.  :\rr.  Donnels,  you  are  connected 
with  the  Home  Life  Insurance  Company,  of  New  York,  are  you? 

A.     Yes,  sir. 

Q.     And  liave  been  for  many  years? 

A.     For  ten  years. 

Q.  Do  you  know  the  meaning  of  the  term  "tontine"  as  ap- 
plied to  life  insurance? 

A.     Yes,  sir. 

Q.     What  does  it  mean? 

A.  Tontine  insurance  is  a  contract  of  insurance  under  which 
the  profits  or  dividends,  as  well  as  the  reserve,  are  forfeited  to  the 
tontine  fund  in  the  eveut  either  of  the  death  of  the  insured  or 
the  forfeiture  of  the  policy  before  the  end  of  the  term.  This 
tontine  fund  is  distributed  among  the  survivors  at  the  expiration 
of  a  specified  term.     In  other  words,  it  is  survivorship  insurance, 

Q.  There  is  fixed  by  every  tontine  policy  what  is  called  a 
"tontine  period,"  is  there? 

A.     Yes,  sir;  a  tontine  period. 

Q.     What  is  that  "tontine  period?" 


15 

A.  It  may  be  ten  years,  or  it  may  be  fifteen  years,  or  it  may 
be  twenty  years. 

Q.     That  is  a  term,  is  it? 

A.     Yes,  sir. 

Q.  An  arbitrary  term,  fixed  ])y  the  policy  itself,  which  the 
holder  of  the  policy  must  siirvave  in  order  to  recover  anything 
from  that  tontine  fund,  is  it  not? 

A.     Yes,  sir. 

Q.  What  do  you  understand  by  the  term  '"term  insurance," 
as  it  is  generally  used? 

A.  It  is  a  contract  written  for  a  short  term  of  years,  and  it 
ceases  at  the  expiration  of  that  term.  The  Company  is  liable 
only  in  the  event  of  the  insured  dying  within  that  time. 

THE  COMMISSIONER.  Q.  '  How  about  the  payment  of 
premiums  upon  such  a  policy? 

A.  The  premium  is  payable  annually  for  a  specified  term. 
It  is  a  very  low  rate  of  premium. 

MR.  McCUTCHEN.  Q.  Mr.  Donnels,  what  is  a  "paid-up 
policy?" 

A.  It  is  what  is  iisually  called  a  single  premium  policy.  The 
Company  issuing  the  policy,  upon  a  single  payment,  issues  a 
contract  of  insurance  which  is  payable  at  the  death  of  the  in- 
sured, and  there  are  no  further  premiums  to  be  paid  upon  it. 

Q.  Taking  those  three  definitions, -and  considering  them  to- 
gether, I  will  ask  you  these  questions:  Is  tontine  insurance  ever 
term  insurance? 

A.     No,  sir. 

Q.     Is  tontine  insurance  ever  paid-up  insurance? 

A.     No,  sir. 

Q.     Is  paid-up  insurance  ever  tontine  insurance? 

A.     No,  sir. 

Q.     Is  term  insurance  ever  tontine  insurance? 

A.     No,  sir. 

MR.  THO:\rAS.  I  would  like  to  ask  Mr.  Donnels  a  few  (|ues- 
tions,  if  you  honor  please? 

THE  COMMISSIONER.     Very  well.     Proceed. 

MR.  THO^IAS.  Q.  'Mv.  Donnels,  is  paid-up  insurance,  so- 
called,  ever  an  original"  contract,  or  is  it  a  subsequent  contract 
or  sequel  to  some  other  contract  of  insurance? 


16 

A.     It  may  be  either. 

Q.  What  do  Insurance  people  ordinarily  call  insurance  which 
is  issued  upon  the  payment  of  one  premium? 

A.     They  call  it  '^'single-premium  insurance." 

Q.     It  is  sometimes  called  "single-payment  insurance?" 

A.     Yes,  sir. 

Q.  And  sometimes  called  "one-premium"  or  "one-payment" 
insurance? 

A.     Yes,  sir. 

Q.     Do  they  ever  call  it  "paid-up  insurance"? 

A.     Yes,  sir. 

Q.  Is  there  any  such  thing  recognized  by  Insurance  Com- 
panies as  "semi-tontine  insurance"? 

A.     Yes,  sir. 

Q.     What  is  that? 

A.  That  is  a  policy  upon  which  the  dividends  only  are  for- 
feited to  the  tontine  fund. 

Q.     It  is  still  recognized  as  tontine  in  principle,  is  it  not? 

A.  Well,  it  is  only  half-toniine  in  principle.  Under  a  full 
tontine  contract,  the  reserve  is  forfeited  to  the  tontine  fund  as 
well  as  the  profits  or  accumulations.  Under  a  semi-tontine  con- 
tract, only  the  accumulations  are  forfeited.  In  other  words,  the 
insured,  in  the  event  of  a  lapse  under  a  semi-tontine  policy,  is 
entitled  to  his  equity  in  the  reserve,  whereas  he  is  not  entitled 
to  any  under  a  full  tontine  contract,  should  he  lapse. 

Q.     It  goes  to  the  extent  of  forfeiture,  then? 

A.     Yes,  sir. 

Q.  (Continuing) — as  to  whether  it  is  semi-tontine  or  full  ton- 
tine insurance? 

A.  Yc^,  sir.  That  is,  as  to  whether  or  not  the  reserve  is  for- 
feited. 

MR.  McCUTCHEN.  Q.  You  stated  that  single-premium 
insurance  is  paid-up  insurance.  You  mean  by  that  the  efEect  of 
single-premium  insurance  is  to  make  it  paid-up? 

A.     Yes,  sir;  the  efi'ect  of  it  is  to  make  it  paid-up. 

Q.  But,  as  understood  by  Insurance  men,  a  single-premium 
policy  is  not  spoken  of  as  a  paid-up  policy,  is  it?    • 

A.  Well,  you  could  properly  speak  of  it  as  a  paid-up  policy.' 
A  paid-up  contract  may  be  issued  for  a  single  premium,  or  it  may 
be  issued  in  lieu  of  an  equity  which  the  insured  has  in  an  old  con- 


17 

tract.  It  is  in  cither  case  paid-up  insurance,  becoming  so  when 
there  are  no  further  premiums  to  pay. 

THE  CUiMMISSIONEE.  Q.  In  other  words,  as  I  under- 
stand you,  Mr.  Donnels,  the  terms  "single-premium"  and  "paid- 
up"  are  convertible — they  mean  the  same  thing? 

A.     They  may  mean  the  same  thing. 

Q.     They  do  actually  mean  the  same  thing? 

A.  No,  sir;  because  a  paid-up  policy  may  be  issued  in  lieu  of 
a  single-premium,  or  in  lieu  of  an  equity  that  the  insured  has 
under  a  contract  that  had  lapsed  and  which  had  a  surrender 
value  in  paid-up  insurance. 

Q.  Assume  that  1  go  to  your  oflice  and  ask  for  a  policy  for 
$10,000,  and  I  tender  you  the  premium  upon  it  all  at  once? 

A.  In  that  case  we  would  issue  a  policy  for  ten  thousand  dol- 
lars, with  no  further  payments  to  make.  This  we  would  call 
"single-premium  insurance."  But  if  you  came  to  us  with  a  con- 
tract that  had  been  in  force  three  years,  and  you  were  entitled  to 
a  surrender  value,  if  we  were  to  give  you  a  policy  for  a  certain 
amount  in  lieu  thereof,  with  no  further  payments  to  be  made  on 
your  part,  we  would  call  that  a  "paid-up"  policy. 

ME.  McAllister.  Q.  in  insurance  parlance,  w'ould  not 
the  insurance  sought  and  paid  for  in  the  example  assumed  by  the 
Commissioner  be  termed  "single-premium  insurance"? 

A.     "We  would  refer  to  it  as  a  single-premium  policy. 

THE  COMMISSIONEE.     Q.     And  a  paid-up  policy? 

A,     As  a  matter  of  fact,  it  is  a  paid-up  policy. 

ME.  THOMAS.  Q.  But  do  you  call  it  such  in  Insurance 
circles? 

A.     No,  sir. 

Q.  That  is  what  we  are  trying  to  get  at.  You  say  you  do 
not  call  it  "paid-up  insurance"  in  Insurance  circles? 

A.     No,  sir. 

Q.  in  order  to  distinguish  those  which  axe  issued  upon  pay- 
ment of  a  single  premium,  and  policies  issued  by  virtue  of  a 
contract  previously  in  existence,  you  call  the  former  "single- 
premium  insurance"  and  the  latter  "paid-up  insurance"? 

A.     Yes,  sir. 

ME.  McCUTCHEN.  Q.  In  the  case  of  a  single-premium 
policy,  there  is  absolutely  nothing  to  do  except  to  pay  the  first 
premium? 


18 

A.     That  is  all. 

Q.     That  ends  it? 

A.     That  ends  it. 

Q.  In  the  nature  of  the  thing,  there  would  not  be  any  other 
form  of  insurance  provided  for  by  such  a  policy? 

A.     No,  sir. 

ME.  McCUTCHEN.  The  man  having  paid  the  first  pre- 
mium, the  only  premium  to  be  paid,  there  could  be  no  forfeiture, 
in  the  nature  of  things. 

THE  COMMISSIONER.  Q.  In  tontine  insurance,  there 
has  never  been  considered  to  be  and  is  not  a  forfeiture  of  the 
rights  of  the  insured,  is  there? 

A.     Yes,  sir,  there  is. 

Q.  I  mean  a  total  forfeituire.  There  is  not  a  total  forfeiture 
when  payments  have  been  made  for  three  years? 

A.     Yes;  in  the  event  of  lapse. 

Q.  How  long  did  you  say  you  have  been  in  the  Insurance 
business,  Mr.  Donnels? 

A.     Ten  years. 

Q.  And  you  have  been  connected  with  the  Home  Life  In- 
surance Company,  of  New  York,  all  that  time? 

ti.     Yes,  sir. 

Q.     Your  Company  has  issued  these  tontine  policies,  has  it? 

A.     No,  sir;  we  do  not  issue  tontine  policies,  and  never  have. 

Q.     You  have  issued  paid-up  policies? 

A.     Yes,  sir. 

Q.     And  term  policies? 

A.     And  term  jjolicies. 

Q.     And  ordinary  life  policies? 

A.     Ordinary  life  policies,  yes,  sir. 

Q.  This  statute  was  passed  in  1880.  I  refer  now  to  Section 
450  of  the  Civil  Code  of  the  State  of  California.  Do  you  know 
the  meaning  of  the  term  "tontine  insurance"  as  used  in  1880? 

A.     Yes,  sir. 

Q.  It  was  entirely  different,  was  it  not,  from  what  is  called 
"semi-tontine  insurance"  now? 

A.  There  is  a  difference,  yes,  sir.  Under  the  full  tontine 
contract,  the  insured,  in  the  event  of  forfeiture,  had  no  equity  in 
the  reserve.     Under  the  semi-tontine  contract  or  policy,  the  in- 


19 

sured  has  an  equity  in  the  reserve,  whether  the  contract  is  com- 
pleted or  not. 

Q.  In  1880  was  there  any  such  thing  known  as  "semi-tontine 
insurance"? 

A.     I  was  not  in  the  Insurance  business  in  1880. 

Q.  From  your  experience  since  then,  wi,s  there  any  such 
tiling  known  in  1880  as  "semi-tontine  insurance,"  as  it  is  known 
now?     You  know,  as  a  matter  of  fact,  do  you  not,  Mr.  Donnels? 

A.     What  is  about  the  date  of  the  New  York  law? 

MR.  THOIMAS.     It  went  into  effect  in  January,  1880. 

A.  (Continuing.)  No  New  York  Company  has  ever  issued  a 
full  tontine  contract  since  the  passage  of  that  New  York  law.  I 
think  the  date  of  that  law  is  about  the  middle  of  the  year  1879. 

THE  COMi\IISSIONEE.  Q.  Then  among  Insurance  men, 
from  about,  say  1880,  there  has  been  a  policy  known  as  a  ton- 
tine policy,  and  another  policy  known  as  a  semi-tontine  policy, 
wliich  were  radically  different.  That  is,  when  you  use  the  term 
"semi-tontine"  you  mean  something  entirely  different  from  what 
is  meant  by  the  term  "tontine"?  They  are  two  separate  classes 
of  insurance? 

A.     Yes,  sir. 

MR.  RANKIN.  Q.  They  differ  only  with  regard  to  the  ex- 
tent of  the  forfeiture,  do  they  not,  Mr.  Donnels? 

A.  They  differ  with  regard  to  the  extent  of  the  forfeiture, 
yes.  That  is  the  only  difference.  Under  the  full  tontine  policy 
the  insured  had  no  equity  in  the  reserve,  while  under  the  semi- 
tontine  he  retains  his  equity  in  the  reserve.  After  the  passage  of 
the  New  York  law,  the  New  York  Companies  were  obliged  to 
give  to  every  policy-holder  his  equity  in  the  reserve.  They  could 
not  issue  a  full  tontine  contract  under  the  law.  and  the  issuance 
of  full  tontine  contracts  was,  therefore,  discontinued  after  the 
passage  of  that  law^ 

THE  COj\BriSSIONER.  Q.  I  am  trying  to  get  at  the  use 
of  the  term  by  Insurance  men,  Mr.  Donnels? 

A.  Many  of  the  contracts  made  before  1880  did  not  mature, 
of  course,  until  after  1880. 

Q.  But  among  Insurance  men  generally,  are  there  not  two 
forms  of  insurance  known  respectively  as  "tontine  insurance" 
and  "semi-tontine  insurance"? 

A.     Yes,  sir. 


20 

Q.  And  they  are  entirely  distinct,  as  far  as  the  use  of  the 
term  is  concerned? 

A.     Yes,  sir. 

Q.  And  tlie  policieis  that  are  heing  issued  now  by  most  of  the 
Companies  are  s-emi-tontine  policies,  and  not  tontine  policies? 

A.     Yes,  sir. 

ME.  EAiSTKIN.  Q.  After  the  passage  of  the  New  York  law, 
which  prohibited  the  issuance  of  tontine  policies,  the  semi- 
tontine  policy  took  the  place  of  the  tontine? 

A.     Yes,  sir. 

Q.     And  was  thereafter  known  as  "tontine  insurance"? 

A.     As  tomtine  insurance,  yes,  sir. 

THE  COMMISSIONER.  Q.  As  far  as  New  York  was  con- 
cerned? 

A.     Yes,  sir. 

MR.  RANKIN.  Q.  That  was  the  generally  accepted  mean- 
ing of  the  term  wherever  insurance  prevailed,  was  it  not? 

A.  When  you  bring  the  definition  down  very  fine,  we  would 
always  refer  to  a  semi-tontine  contract  as  a  semi-tontine  con- 
tract, and  to  a  tontine  contract  as  a  tontine  contract. 

MR.  McCUTCHEN.  Q.  There  was  no  tontine  insurance, 
except  what  you  now  understand  as  semi -ton  tine  insurance, 
issued  by  any  Company  after  the  passage  of  the  New  York  law, 
was  there? 

A.  Not  by  any  of  the  New  York  Companies.  I  do  not  know 
whether  any  of  the  Companies  of  the  other  States  issued  it  or 
not.  But  no  Company  in  New  York  issued  a  full  tontine  con- 
tract after  the  law  of  1879  went  into  effect. 

Q.  As  applied  to  insurance  in  New  York,  when  the  word 
"tontine"  was  used  at  any  time  after  the  passage  of  that  statute, 
there  was  meant  what  is  now  knwn  as  a  semi-tontine  contract? 

A.     Yes,  sir;  as  a  semi-tontine  conti-act. 

THE  COMMISSIONER.  If  there  are  no  other  questions, 
Mr.  Donnels  may  now  proceed  to  read  his  brief  or  statement. 


21 

mUKV   Ol'    II.    C.    DOXXKI.S.    I-:SQ., 
On  hohalf  of  the  Home  Life  Insurance  Company,  of  New  York, 

As  to  liic  lueanin-j;  of  Section  450  of  the  Civil  Code  of  the  State 
of  California,  in  support  of  the  position  we  take  in  the  matter, 
I  would  beg  to  submit  the  following: 

Section  450  reads  as  follows: 

''  Every  contract  or  policy  of  insurance  hereafter  made  by  any 
"  person  or  corporation  organized  under  the  laws  of  this  State, 
"  or  under  those  of  any  other  State  or  country,  with  and  upon 
"  the  life  of  a  resident  of  this  State,  and  delivered  within  this 
"  State,  shall  contain,  unless  specifically  contracted  between  the 
"  insurer  and  the  insured  for  tontine  insurance,  or  for  other  term 
"or  paid-up  insurance,  a  stipulation  that  when,  after  three  full 
'*  annual  premiums  shall  have  been  paid  on  such  policy,  it  shall 
"  cease  or  become  void  solely  by  the  non-payment  of  any  pre- 
*'  mium  when  due,  its  entire  net  reserve  by  the  American  Ex- 
"•  perience  Mortality,  and  interest  at  fouT  and  one-half  per  cent 
"  yearly,  less  any  indebtedness  to  the  Company  on  such  policy, 
"  shall  he  applied  by  such  Company  as  a  single  premium,  at  such 
"  Company's  published  rates  in  force  at  the  date  of  original 
"  policy,  but  at  the  age  of  the  insured  at  the  time  of  lapse,  either 
"  to  the  purchase  of  non-participating  term  insurance  for  the  full 
"amount  insured  by  such  policy,  or  upon  the  written  applica- 
"  tion  by  the  owner  of  such  policy  and  the  surrender  thereof  to 
"  such  Company  within  three  months  from  such  non-payment  of 
"  premium,  to  the  purchase  of  a  non-participating  paid-up  policy, 
"  payable  at  the  time  the  original  policy  would  be  payable  if  con- 
"  tinned  in  force;  both  kinds  of  insurance  to  be  subject  to  the 
"same  conditions,  except  as  to  payment  of  premium,  as  those  of 
"  the  original  policy.  It  may  be  provided,  however,  in  such 
"  stipulation  that  no  part  of  such  term  insirrance  shall  be  due  or 
"  payable,  unless  satisfactory  proofs  of  death  be  furnished  to  the 
"  insuring  Company  Avithin  one  year  after  death,  and  that,  if 
"  death  shall  occur  within  three  years  after  such  non-payment  of 
"  premium,  and  during  such  term  insurance,  there  shall  l)e  de- 
"  ducted  from  the  amount  payable  the  sum  of  all  the  premiums 
"that  would  have  become  due  on  the  original  policy  if  it  had 

continued  in  force.  If  the  reserve  on  endowment  policies  be 
"  more  than  enough  to  purchase  temporary  insurance,  as  afore- 


'>'> 


*' said,  to  the  end  of  the  eudowment  term,  the  excess  shall  he 
"  applied  to  the  purchase  of  pure  endowment  insurance,  payable 
"  at  the  end  of  the  term,  if  the  insuired  be  then  living.  If  any 
*'  life  insurance  corporation  or  company  shall  deliver  to  any 
"  person  in  this  State  a  policy  of  insurance  upon  the  life  of  any 
"  person  residing  in  this  State,  not  in  conformity  with  the  pro- 
"  visions  of  this  section,  the  right  of  such  corporation  or  com- 
"  pany  to  transact  business  in  this  State  shall  thereupon  and 
"  thereby  cease  and  determine,  and  the  Insurance  Commissioner 
"  shall  immediately  revoke  the  certificate  of  such  corporation  or 
"  company  authorizing  it  to  do  business  in  this  State,  and  publish 
"  such  revocation,  daily,  and  for  a  period  of  two  weeks,  in  two 
"daily  newspapei's,  one  published  in  the  City  of  San  Francisco 
"and  the  other  in  the  City  of  Sacramento.  (Amendment  ap- 
"  proved  A})ril  26th,  1880;  took  effect  60th  day  after  passage; 
"repealed  conflicting  acts.)" 

The  essence  of  this  is,  that  every  contract  must  contain  a 
stipulation  that  after  it  has  been  in  force  three  years,  should  it 
lapse,  the  reserve  at  four  and  one-half  per  cent  shall  be  applied 
to  either  the  purchase  of  non- participating  term  insurance  or 
paid-up  insurance,  unless  it  is  specifically  contracted  between  the 
insurer  and  the  insured  for  "tontine  insurance,  or  for  other  term 
"  or  paid-ujj  insurance." 

We  believe  that  Mr.  Clunie's  interpretation  of  the  law  is  that 
every  policy  issued  by  any  company  transacting  business  in  this 
State,  upon  the  life  of  a  resident  of  this  State,  must  provide  for 
automatic  term  insurance  or  paid-u.p  insurance  on  surrender  of 
the  policy  in  the  form  specified  in  Section  450,  with  the  excep- 
tion of  "tontine  policies,"  "term  policies,"  and  "paid-up  poli- 
cies." To  maintain  this  interpretation,  it  is  necessary  that 
"term  insurance"  and  "paid-up  insurance"  should  be  some  form 
of  "tontine  insurance."     Let  us  see  if  they  are. 

The  terms  "tontine  insurance,"  "term  insurance,"  and  "paid- 
up  insurance"  must  be  clearly  understood,  to  get  at  the  true 
meaning  of  this  statute. 

Nathan  Willey,  Actuary,  in  his  "Principles  and  Practice  of 
Life  Insurance,"  writes  as  follows  regarding  tontine  insurance: 

"In  the  tontine  form  of  investment,  a  number  of  members 
"  created  a  fund  by  paying  in  certain  stipulated  sums,  the  amount 
"of  which  was  invested.     The  interest  was  divided  amonsr  the 


90, 


"  survivors.  When  the  last  one  died,  the  fund  reveo-ted  to  the 
"  State.  It  is  easy  to  see  that  as  the  members  passed  away,  the 
'•  income  of  those  that  remained  increased.  This  form  of  invest- 
"  ment  was  introduced  into  F.urope  in  the  Seventeenth  Century 
"  by  a  Neapolitan  named  Lorenzo  Tonti. 

"  Another  and  more  nsual  method  is  to  improve  the  fund  cre- 
"  ated  by  tlie  premiums  of  the  members  until  they  have  been 
"  reduced  by  death  to  a  certain  number,  among  whom  the  fund 
''  is  to  be  divided. 

"  The  tontine  element,  in  one  form  or  another,  was  for  many 
"  years  applied  to  the  accumulations  of  life  insurance  companies, 
*'  both  in  this  and  other  countries.  This  could  hardly  be  other- 
'•'  wise  at  a  time  when  a  policy  was  forfeited  upon  the  failure  to 
*'  pay  the  premiums  when  due,  and  when  dividends  were  only  ap- 
"  po'rtioned  once  in  five  or  once  in  seven  years.  The  application 
"  of  tlie  tontine  element  was  specially  made  by  prominent  Amer- 
"  ican  Companies  about  the  year  1870.  Policies  to  which  this 
'"'  element  was  applied  were  placed  in  a  class  by  themselves,  and 
'"  tlie  premiums  paid  by  these  members  were  improved  for  their 
''  specific  benefit.  From  this  fund  was  paid  all  expenses  of 
*'  management  and  all  claims  arriving  from  the  death  of  any  of 
"  the  members.  At  the  end  of  a  stipulated  number  of  years,  the 
'■  fund  was  divided  among  the  survivors  who  had  maintained 
"  their  policies  in  force  and  observed  all  the  other  conditions  in- 
"  corporated  in  the  contract.  Various  options  were  given.  A 
"  member  could  withdraw  the  whole  interest  belonging  to  his 
"  policy;  he  could  withdraw  the  surplus  and  continue  the  insur- 
"  ance;  he  could  use  the  value  of  either  the  surplus  or  the  entire 
"  interest  to  purchase  an  annuity  or  paid-up  insurance.  In  case 
"  the  latter  option  was  taken,  the  amount  of  the  paid-up  policy 
"  could  not  exceed  that  of  the  original  policy  unless  proof  was 
"  furnished  to  the  Company  that  the  member  to  be  so  insured 
"  was  in  good  health.  This  form  of  insurance  was  ahsohdely 
"  forfeitable  upon  the  nn?i-payment  of  a  premium." 

This  same  Actuary,  in  another  work  on  Life  Insurance,  briefly 
defines  tontine  insurance  as  follows: 

"  A  fund  contributed  with  the  understanding  that  it,  \\ith  all 
"  interest  accumulations,  is  to  be  divided  among  the  sjirvivors 
"  at  a  certain  date,  or  when  they  are  reduced  to  a  certain  num- 
"  ber." 


24 

Mr.  Charles  E.  Willis,  in  his  Treatise  on  Life  Insurance,  gives 
the  following  explanation  of  "Tontine": 

"  In  lfi4S,  Lorenzo  Tonti  organized  a  fund  in  Naples,  the  con- 
"  ditions  of  which  were  as  follows: 

"  Each  subscriber  paid  a  certain  sum  of  money  into  the  fund. 
"  The  total  fund  was  invested,  and  the  interest  on  the  amount 
"  of  each  subscription  was  paid,  during  the  lifetime  of  the  sub- 
"  scriber,  to  such  person  as  he  named.  x\t  the  death  of  a  sub- 
"  scriber,  his  subscription  was  forfeited  to  the  fund,  and  the  in- 
"  terest  thereon  was  divided  among  the  subscribers,  who,  for  this 
"  purpose  were  divided  into  classes  according  to  age.  At  the 
"  death  of  the  last  subscriber,  the  entire  capital  subscribed  re- 
"  verted  to  the  crown. 

"  It  will  be  seen  that  this  is  the  opposite  of  life  insurance, 
"  since  those  who  live  longest  receive  the  greatest  benefit.  The 
"principle  of  forfeiture  on  the  part  of  those  tvlio  die  and  of  accu- 
"  mulation  for  those  ivho  survive  is  known  as  the  'Tontine'  princi- 
"  pie.      This  was  tirst  applied  to  life  insurance,  as  follows: 

"  It  is  evident  that  a  policy-holder  who  has  paid  premiums  for 
"  several  years  and  then  given  up  his  insurance,  paying  no  fur- 
"  ther  premiums,  leaves,  in  the  hands  of  the  Company,  the  re- 
"  serve  credited  to  his  policy,  and  also  any  share  in  the  surplus 
"  which  might  fairly  be  considered  his,  but  which  has  not  been 
"  actually  paid  to  him  in  the  form  of  dividends.  The  entire 
"  amount  of  this  reserve  and  of  this  surplus  was  credited  by  the 
"  Company  to  the  other  policies  of  the  same  form  and  class.  If 
"  a  policy  became  a  death  claim,  the  face  of  the  policy  only  was 
"  paid,  and  any  accrued  but  undivided  surplus  thereunder  was 
"  credited  in.  like  manner.  Finally,  at  the  end  of  a.  specified 
"  number  of  years,  known  as  the  tontine  period,  the  gains  from 
"these  sources  were  divided  among  the  holders  of  such- policies 
"  of  this  form  and  class,  as  then  remained  in  force." 

Mr.  Mervin  Tabor,  in  his  "Three  Svstems  of  Life  Insurance" 
gives  j\Ir.  Emery  McClintock's  definition  of  tontine  insurance, 
which  is  as  follows: 

"  Tontine  policies  are  issued  on  any  usual  form  the  same  as 
"  ordinary  policies,  such  as  ordinary  life,  limited  payment  life, 
"  or  endowment  policies.      They  are  issued  at  the  usual  rates  of 


25 

"  premium,  and  the  only  difference  between  such  j>olicies  and  the 
"  ordinary  policies  lies  in  certain  peculiar  stipulations. 

"  The  first  stipulation  is  as  follews: 

"  '  No  dividend  shall  be  allowed  or  paid  upon  this  policy  until 
"  '  the  person  wholse  life  is  insured  thereby  shall  survive  the 
"'completion  of  its  ton'tine  dividend  ]>eriod,  and  unless  this 
"  '  policy  shall  then  be  in  force.' 

"  The  period  referred  to  is  either  ten,  fifteen,  or  twenty  years, 
"  according  to  the  choice  made  by  the  policy-holder  in  his  orig- 
"  inal  application.  The  effect  of  this  stipulation  is,  that  each 
"  premium  must  be  paid  in  full  in  cash,  during  the  tontine 
"  period,  without  being  reduced  by  dividends. 

"  The  second  stipulation  is: 

"  i  Previous  to  the  completion  of  its  tontine  dividend  period, 
"  '  this  policy  shall  have  no  surrender  value  in  a  paid-up  policy  or 
"  '  otherwise.' 

"  The  effect  of  the  stipulation  ahovt  (pioted  is  to  produce  sav- 
"  ings  to  the  Company,  first,  in  not  paying  out  dividends,  and, 
"  secondly,  in  not  issuing  paid-up  policies  in  case  of  lapse.  The 
"value  of  such  saving'^  witli  their  accumuilations  is  credited  to 
**  the  touitine  policies  which  complete  their  i"esi>eotive  periods." 

Thus  the  essential  of  tontine  insurance  is  survivorship. 

Mr.  Willey's  definition  of  "term  insurance'"  is: 

"  A  policy  in  which  the  sum  is  paid  if  the  insured  dies  during 
"  a  definitely  stated  period." 

Mr.  Willard  explains  •"tei-iii  insurance'"  in  tlie  following  lan- 
guage: 

"  Tenn  insurance  is  insurance  covering  a  specified  term. 
"  This  provides  for  payment  on  account  of  such  deaths  only  as 
"  occur  during  the  tenn.  *  *  *  The  lenn  premium  is  con- 
"  sequently  lower." 

Mr.  Tabor's  deliniiion  is: 

"Term-life.  This  policy  is  made  payable  only  on  the  death 
"of  the  insured  within  the  term  designated  in  the  contract.  The 
"  term  may  be  one,  three,  or  six  months;  one  year,  ten  or  twenty 
"years.  The  policy  contract  may  provide  for  a  renewal,  at  the 
"  expiration  of  the  original  term,  or  re-examination  of  the  iu- 
"  sured,  and  at  an  advanced  rate  of  premium,  or  not.  This  de- 
"  pends  upon  the  practice  of  the  Comjniny  issuing  it.     A  'term- 


20 


u 


'life  policy  ir.  ^.  ,jvi.ji>^.  uatUtrhtoodi  to  be  inimrance  for  ten  to 
«« tv''^-  v/.rs^  with  a  uniform  annual  premium.  *  ♦  ♦  jJq 
*' )  '/je  minute  after  the  defsignuled  term  is  ended." 

i  HB  «ame  gentlemen  define  a  paid-up  policy  rsingle-preraium 
insurance)  a«  follows: 

Mr.  Willey:  "Single-premium.  A  siwn  of  money  paid  for 
"  ineuram*,  and  in  crorusideration  of  which  all  future  frremiums 
"  are  forV^me." 

Mr.  Willard:  "A  policy  payable  only  upon  death  of  the 
**  insured  is  known  as  a  life  policy.  The  payment  of  a  single- 
**  premium  constitutes  a  single-payment  life  j)olicy.'* 

Mr.  TaU>r:  "  Single-f>ayment  Life.  ThiH  is  a  policy  that 
"  is  payable  at  the  death  of  the  injured  only.  All  the  preminms 
"  are  paid  in  one  single  sum." 

It  is  clearly  evident  from  the  foregoing  definitions  that  "ton- 
**  tine  insurance"  is  neither  ''term*'  nor  "paid-up^*  insurance,  and 
therefr>re  obvious  that  the  word  ''other"  in  this  statute  d^^es 
not  apply  to  it  (tontine  insurance)  but  to  other  "term  or  paid-uf) 


**  insurance." 


As  the  only  other  "t«rm  or  paid-up  insurance"  that  is  men- 
tioned in  the  statute  is  the  term  insurance  or  paid-up  insurance 
that  the  four  and  one-half  per  cent  reserve  shall  be  used  to  pur- 
chase, the  word  "other"  must  refer  to  such  other  "term  or  paid-up 


"  insurance.^' 


*t  ♦ 


Section  450  says  briefly: 

"  Every  contract  or  policy  of  insurance  shall  contain,  unless 
specifically  contracted  between  the  insurer  and  the  insured 
for  tontine  insurance,  or  for  other  term  or  paid-up  insurance, 
a  stipulation  that  *  *  *  its  net  reserve  *  *  *  ghall 
be  app!ie*l  *  *  *  ;,,  ^  ^jngle  premium  to  the  purcha.s>e  of 
*  non-panici  paling  term  insurance  ♦  *  *  or 
"  upon  written  application  by  the  owner  of  «uch  policy  and  sur- 
"  render  thereof  to  such  company  *  *  *  to  the  purchase  of 
"a  non-participating  paid-up  policy',  *  *  *  hoth  kind*  of 
"insurance  to  be  »ubj(f^>t  to,     *     ♦     ♦^^     etc. 

We  take  the  meaning  of  this  to  be  that  all  policies  shall  con- 
tain a  stipulation  for  automatic  term  insurance  or  for  paid-up 
insurance  on  legal  surrender  of  the  policy  as  provided  in  Section 
450,  unless  it  is  specifically  contracted  between  the  insurer  and 


ti 


27 


the  insured  for  other  term  or  paid-up  insurance  than  provided  in 
Section  450,  or  "tontine  insurance,"  and  claim  that  when  a  defi- 
nite agreement  is  entered  into  between  the  Company  and  the 
insured  for  either  term  insurance  or  paid-up  insurance  other  than 
provided  in  said  Section  450,  or  for  tontine  insurance,  this  law 
is  complied  with. 

If,  as  contended  by  the  Insurance  Commissioner,  it  were  in- 
tended that  all  policies  should  contain  the  stipulation  as  laid 
down  in  the  statute  for  automatic  term  insurance,  except  purely 
tontine  policies,  or  purely  term  policies,  ot  purely  paid-up  poli- 
cies, the  law  should  read  "unless  specifically  contracted  between 
"  the  insurer  and  the  insured  for  tontine,  term,  or  paid-up  in- 
surance." The  word  ''other,"  then,  would  be  omitted. 
There  is  no  doubt  that  this  section  exempts  tontine  insurance 
from  its  conditions,  and  we  fully  agree  with  the  Commissioner 
on  this  point.  It  is  only  proper  that  this  exemption  should  be 
made,  and  the  reason  for  doing  so  is  quite  apparent.  Under 
the  tontine  policy,  the  insured  foregoes  the  right  to  an  equity 
in  the  reserve,  and  has  no  surrender  value  should  the  policy 
lapse  any  time  before  the  completion  of  the  tontine  period,  and 
should  the  policy  so  lapse,  bhe  reserve  is  credited  by  the  Com- 
pany to  the  tontine  fund  to  be  distributed  as  provided  in  the  con- 
tract, among  the  survivors  of  the  tontine  period  who  have  co'n- 
tinued  their  policies  in  force.  Were  not  this  exception  made  in 
Section  450,  the  law  would  conflict  with  the  conditions  of  a  ton- 
tine contract  and  practically  prohibit  its  issuance. 

We  believe  the  fact  that  Section  450  exempts  tontine  insurance 
is  of  itself  evidence  that  its  author  and  those  who  were  interested 
in  its  passage,  recognized  the  right  of  an  Insurance  Company  aiid 
the  insured  to  enter  into  a  definite  agreement  concerning  the  dis- 
position of  the  reserve,  and  that  there  was  no  intention  to  impbse 
any  conditions  upon  the  Company  in  this  respect  except  in  the 
absence  of  a  contract  between  the  parties  as  to  the  manner  in 
which  it  should  be  disposed  of  in  the  event  of  a  lapse  after  three 
years. 

According  to  the  interpretation  by  the  Insurance  Commission- 
er, Life  Insurance  contracts  issued  under  the  term  insurance,  or 
single-premium  (paid-up  insurance)  plans  are  also  exempt  fro-m 

the  force  of  the  statute. 

Now,  there  could  be  no  possible  reason  for  exempting  term  in- 


2J5 

su ranee  or  term  policies.  This  form  of  insurance,  it  is  true,  is 
written  at  a  lower  premium  than  ordinary  or  whole-life  insur- 
ance, or  any  of  the  other  forms,  hut  there  is,  nevertheless,  a  re- 
serve element  under  term  policies,  as  well  as  all  other  forms  is- 
sued hy  the  Life  Insurance  Companies,  and  the  i-nsured  has  his 
lights  thereto.  This  rieserve  is  small  in  the  first  stages  of  the 
jiolicy.  aind  reaches  its  maximum  at  the  mean  age  of  the  contract, 
and  is  entirely  ahsorhed  on  completion  of  the  insurance  term. 
Sliould  the  insu'red  lapse  his  policy  while  there  is  any  reserve  to 
his  credit,  he  is  certainly  entitled  to  an  equity  therein,  and  all 
<  the  C'ompajnies  recognize  this  equity  and  proAdde  for  it  in  their 
policies.  We  do  not  helieye  that  it  could  have  been  the  pnrpo'se 
of  Section  450  to  deprive  the  insured  of  a  right  which  the  Com- 
panies concede  he  is  entitled  to.     It  certainly  does  not  seem  con- 

■  fii&tent  wnth  equity  that  it  should. 

Nor  can  there  be  any  reason  why  "paid-up  policies"  should  be 
•  exempted.  A  paid-up  policy  cannot  "cease  or  become  void  solely 
by  the  non-payment  of  any  premium  when  due,"  for  the  reason 
tliat  there  are  no  further  premiums  to  pay  after  the  contract  has 
been  placed  in  force  by  the  payment  of  the  one  premium  re- 
quired, therefore  this  law  can  have  no  bearing  on  paid-up  poli- 
cies and  it  would  be  needless  to  exempt  that  class  from  its  con- 
ditions. If  it  were  intended  that  they  should  have  been  ex- 
empted, we  helieve  they  would  have  been  referred  to  or  desig- 
nated "single-premium  policies."  When  a  policy  is  purchased  hy 
one  payment,  and  we  understand  this  is  the  kind  of  policy  the 

■  Insurance  Commissioner  has  in  mind,  while  it  is  by  its  terms  a 
paid-up  policy,  it  is  referred  to  as  either  a  "single- payment"  or 
"  single-premium"  policy.  This  is  to  distinguish  it  from  a  lim- 
ited-payment policy  that  has  become  paid  u])  by  completion  of 

■  the  number  of  j.ayments  required,  or  a  paid-u])  policy  that  has 
'been  issued  in  lieu  of  a  surrendered  policy. 

If  the  law  is  as  we  read  it,  this  Company  has  fully  complied 

■  with  all  of  its  conditions,  as  the  Insurance  Commissioner  will  find 
by  referring  to  the  copies  of  the  policies  and  application  forms 
usrd  by  this  Company  since  its  admission  to  the  State  of  Califor- 

'  nia  and  placed  on  file  in  its  office.      AH  of  these  forms  contain  a 
'specific  contract  for  term  and  paid-up  insurance  other  than  pro- 
vided in  the  statute. 

The  Insurance  Commissioner  certainly  cannot  claim  that  ton- 


29 

tine  insurance  i«  paid-up  insurance,  and  therefore  the  only 
ground  on  which  he  can  maintain  his  position  is,  that  tontine  in- 
surance is  a  form  of  term  insurance.  To  do  this,  he  must  ignore 
the  technical  use  of  both  terms — "tontine"  and  "term" — and  rely 
on  the  common  or  general  use  of  the  word  "term,"  holding  that 
because  there  is  a  term  of  years  in  connection  with  tontine  in.sur- 
ance,  it  is  therefore  a  form  of  term  insurauoc.  Xow,  if  tontine  is 
term  insurance,  then  every  contract  of  insurance  issued  by  any 
of  the  regular  Life  Insurance  Companies,  is  also  term  insurance, 
for  the  reason  that  every  policy  written  is  a  contract  of  indemnity 
for  some  certain  period,  whether  it  be  for  a  term  of  one  or  ten 
years,  or  for  life.  Then,  on  the  other  hand,  as  a  matter  of  fact, 
nearly  all  of  the  policies  issued  by  this  Company  are  a  modified 
form  of  tontine  insurance,  and,  we  believe,  would  be  exempt  un- 
der Section  450.  So,  even  if  a  construction  wore  put  on  the 
statute  contrar}'  to  our  understanding  of  it,  it  is  manifest  that, 
as  far  as  this  company  is  concerned,  the  law  has  not  been  vio- 
lated. 

Respectfully, 

HOME  LIFE   IXSUHAXCE  COMPAXY  OF  X.  Y. 

By  H.  C.  DOXXELS, 
Cashier  San  Francisco  Office. 

Submit.t<Kl  by  the  HOME  LIFE  IXSURAXCE  CO., 

ELLIOTT  ]\IcALLISTER,  ESQ., 

Attorney  for  limine  Life  Ins.  Co. 
January  17.  1898. 


MR.  THOMAS.  ]\Ir.  Madison  is  procsent,  representing  the 
Equitable  Life  Assurance  Company,  of  Xew  York.  He  has  an 
allidiuit  of  Mr.  Shields,  which  we  would  all  like  to  hear,  if  your 
Honor  desires  to  listen  to  it  now. 

THE  CO^IMISSIOXER.  Very  well.  I  will  hear  Mr. 
Shields'  affidavit. 


30 

AFFIDAVIT  OF  A.  M.  SHIELDS,  ESQ., 

Manager  of  the  Equitable  Life  Insurance  Company,  of  New  York. 

State  of  California, 
City  and  County  of  San  Francisco — ss. 

A.  M.  SHIELDS,  being  duly  sworn,  on  oath  says:  I  am  the 
Manager  for  the  Pacific  Coast  of  The  Equitable  Life  Assurance 
Society  of  the  United  States,  a  corporation  organized  and  ex- 
isting under  the  laws  of  the  State  of  New  York,  and  doing  busi- 
ness throughout  the  United  States  and  in  the  State  of  Califor- 
nia. For  many  years  last  past  I  have  been  connected  with  said 
Society,  and  have  made  a  study  of  the  life  insurance  business  as 
conducted  and  carried  on  by  the  various  life  insurance  companies 
throughout  the  United  States,  and  particularly  throughout  the 
St-ate  of  California.  I  am  well  acquainted  with  the  different 
kinds  and  forms  of,  and  well  know  the  meaning  of  the  terms 
employed  in  defining  and  referring  to  the  various  policies  or 
contracts  for  life  insurance  issued  by  the  various  life  insurance 
companies  doing  business  in  the  State  of  California.  I  know 
the  meaning  of  the  words  "tontine  insurance,  "term  insurance," 
and  "paid-up  insurance,"  and  I  know  the  meaning  which  said 
words  or  terms  had  at  and  prior  to  April  2r)th,  1880. 

"Tontine  insurance,"  by  which  term  that  form  of  insurance 
was  known  and  called  in  the  year  1880,  and  prioT  thereto,  was 
a  contract  or  policy  of  insurance  upon  the  life  of  a  person  where- 
by the  insured  waived  all  interest  in  any  dividends  unless  he 
should  live  and  survive  a  certain  period  of  time  called  the  ton- 
tine period;  at  the  end  of  which  tontine  period,  if  he  survived, 
the  insured  became  entitled  to  share  in  the  accumulated  profits. 
If  during  the  tontine  period  the  insured  should  fail  to  pay  his 
premium,  the  policy  lapsed  and  the  injured  forfeited  all  right 
to  the  premiums  already  paid;  these  forfeited  premiums,  less  the 
cost  of  insurance,  going  to  swell  the  profits  of  tlfose  who  survived. 
The  distinctive  feature  in  tontine  insurance  was  survivorship. 
If  the  insured  died  during  the  tontine  period,  the  beneficiary 
tf)ok  the  face  of  the  policy,  but  nothing  more. 

Since  about  1883  tontine  insurance  has  come  to  have  a  wider 
and  more  comprehensive  meaning,  and  the  tontine  insurance 


3L 

policies  now  issued  by  The  Equitable  Life  Assurance  Society 
provide  for  paid-up  insurance  after  three  annual  payments. 

Term  insurance  has  always  meant  a  contract  or  policy  of  insur- 
ance whereby  the  insurer  contracts,  for  a  certain  amount  of 
money  to  be  paid  at  certain  specified  times,  to  pay  to  the  benefi- 
ciary named  in  the  policy  a  certain  specified  sum  in  the  event 
the  insured  should  die  within  the  term  agreed  upon  in  the 
policy.  It  is  bare  insurance,  and  the  insured  never  in  any  event 
acquires  any  interest  in  the  profits  of  the  company.  In  no 
event  is  he  entitled  to  dividends,  and  upon  his  surviving  the  term 
all  rights  and  obligations  of  the  insured  and  insurer  ipso  facto 
terminate.  This  form  of  insurance  is  totally  unlike  tontine 
insurance.  The  words  "'Term  insurance'"  are  not  applicable  to 
any  form  of  tontine  in«;urance.  Indeed,  one  may  be  said  to  be 
the  antithesis  of  the  other,  for  in  tontine  insurance  at  the  end  of 
the  tontine  period  the  insured  realizes  on  his  investment,  and 
makes  his  profit,  while  with  term  insurance  at  the  end  of  the 
term  the  insured  gets  nothing. 

The  term  "paid-up  insurance,"  is  insurance  which  the  insurer 
agrees  in  original  contracts  or  ])olicies  of  insurance  to  give  the 
insured  in  certain  events  or  contingencies.  In  one  sense,  it 
means  insurance  on  one's  life,  upon  which  there  are  no  moxe 
premiums  to  pay;  buit  insurance  where  the  premiums  are  paid  at 
onee  and  upon  the  execution  and  delivery  of  the  policy,  is  not 
called  "paid-up"  insurance,  but  "single-payment"  or  "single-pre- 
"mium,"  or  "one-payment"  insurance.  Paid-up  insurance  is 
never  contained  in  an  original  contract,  but  the  policy  containing 
that  insurance  is  always  issued  as  the  result  of  a  surrender  or 
exchange  of  some  other  policy  of  insurance. 

A.  M.  SHIELDS. 
Subscribed  and  sworn  to  before  me  this  15th  day  of  January, 
A.  1).  1898. 

A.  J.  HENEY, 
Notary  public  in  and  for  the  City  and  County  of  San  Fran- 
cisco, State  of  California. 


MR.  MUXSELL.     :Mr.  Commissioner,  I  wrote  you  a  letter 
from  Oakland  yesterday,  giving  you  briefly  my  view  of  this  law. 


32 

Section  450  of  the  Civil  Code  of  California.  T  presume  you  re- 
ceived it? 

THE  COMMISSIONEE.     I  received  it,  yes. 

ME.  MUNSELL.  I  have  made  a  slight  modification  since.  I 
would  like  to  have  Mr.  Landers  read  aloud  the  letter  as  modified, 
to  the  gentlemen  here  assembled,  if  there  is  no  objection  and  Mr. 
Landei-s  will  kindly  do  so.  I  have  not  attempted  to  elaborate 
the  matter.  I  have  been  very  much  pushed  for  some  time,  and 
hence  I  thought  I  would  leave  the  question  of  elaboration  to 
other  parties  interested. 

THE   COMMISSIOXER.     Mr.  Landers  mav  read  the  letter. 


LETTER  OF  JAMES  MUNSELL,  JR.,  ESQ., 
l^rincipal  Agent  of  the  JMutual  Benefit  Life  Insurance  Company. 

Oakland,  Cal.,  January  15,  1898. 
Andrew  J.  Clunie, 

Insurance  Commissioner  of  the 
State  of  California, 

San  Francisco,  Cal. 
Dear  Sir: 

I  duly  received  your  communication  of  recent  date,  calling  my 
attention  to  time  fixed  by  you  when  the  principal  agents  of  the 
Life  Insurance  Companies  doing  business  in  this  State  could 
present  their  views  concerning  the  proper  compliance  by  their 
Companies  with  Section  450  of  the  Civil  Code  and  what  is  known 
as  the  non-forfeiture  Life  Insurance  Law  of  California.  As  I 
may  not  be  able  to  be  present  at  that  time,  and  having  special 
personal  knowledge  which  maybe  of  value,  T  take  the  liberty  of 
writing  you. 

As  the  matters  required  by  that  section,  under  certain  circum- 
stances, to  be  placed  in  life  insurance  ]>olicies,  were  taken  practi- 
cally word  for  word  from  the  non-forfeiture  system  of  the  Com- 
pany I  represent,  and  at  my  instance,  you  will  readily  see  why  I 
feel  that  I  have  no  interest  in  this  matter  except  as  my  personal 
knowledge  of  certain  facts  concerning  that  section  may  be  such  as 
to  throw  some  light  upon  its  meaning. 

I  have  n-ever  supposed  until  lately  that  there  was  or  could 
be  any  question  as  to  its  meaning,  and  although  the  question 


wliich  lias  now  arisen  cannot  atfcct  myself  or  niy  (Jonipany.  still, 
my  conni'ction  with  the  adoption  of  that  section  as  it  now  stands 
would  seem  to  make  it  my  duty  to  lay  certain  facts  before  you. 

'J'hat  section  was  passed  in  1880  (in  its  present  form),  under 
Assembly  Bill  99,  according  to  my  present  recollection,  which  re- 
pealed Section  451  relating  to  the  same  subject.  The  old  section 
451  as  it  stood  previous  to  1880,  had  not  been  generally  accepted 
by  Eastern  Companies,  largely  because  it  was  believed  to  be  in 
conflict  in  some  cases  with  their  charters,  and  in  other  cases  with 
the  hnvs  of  the  States  where  they  were  organized,  which  gave 
(in  some  cases  at  least)  policy-holders  other  and  different  privi- 
leges or  benefits  in  lieu  of  the  reserve  of  lapsed  policies.  As  a 
result  of  this  and  the  efforts  to  enforce  those  obnoxions  provi- 
.sions  of  our  own  laws,  many  of  the  Companies  practically  with- 
drew, and  some  of  them  did  no  business  here  for  some  six  years, 
and  some  of  them  and  their  agents  suffered  heavy  loss.  These 
facts,  and  the  principles  involved  Avere  thus,  very  naturally, 
burned  into  the  memory  and  consciousness  of  those  thus  affected, 
including  myself,  as  if  by  fire,  metaphorical ly  speaking. 

Jn  1880,  with  others,  I  made  a  vigorous  effort,  which  proved 
successful,  to  have  the  law  changed.  That  change  is  shown  by 
Section  450  of  the  Civil  Code  as  it  now  stands.  I  drafted  the 
bill  which  worked  that  change,  and,  naturally,  there  is  no  ques- 
tion in  my  mind  as  to  its  meaning,  nor  as  to  how  it  was  under- 
stood by  the  members  of  both  the  Senate  and  House  with  whom  I 
very  generally  discussed  it,  and  particularly  as  to  the  meaning 
and  effect  of  the  phrase,  "unless  specifically  contracted  between 
"  the  insurer  and  the  insured  for  tontine  insurance,  or  for  other 
"  term  or  paid-np  insurance,  a  stipulation/'  etc. 

If  you  will  examine  almost  any  ordinary  life  or  endowment 
policy  of  the  Mutual  Benefit  Life  Insurance  Company,  of  New- 
ark, New  Jersey,  issued  between  1879  and  1895,  you  will  find 
that  the  language  of  that  section  after  that  clause  came  from 
the  policy  of  the  Mutual  Benefit  Life  Insurance  Company,  almost 
verbatim,  and  therefore,  in  order  to  determine  the  meaning  of 
technical  insurance  terms,  it  is  undoubtedly  necessary  and  proper 
to  place  the  same  construction  upon  such  technical  insurance 
terms  used  in  various  parts  of  Section  450  that  is  placed  u]->on 
such  technical  terms  or  expressions  by  said  "Mutual  Benefit  Life 
Insurance  Company,  and  other  companies  in  actual  practice,  m 


34 

the  settlement  of  claims  under  their  policies.  Following  this 
rule,  it  will  be  found  that  such  expressions  as  "term"  or  "other 
"  term"  or  "paid-up"  insurance  used  in  said  stipulation  and 
elsewhere  in  the  body  of  the  section,  mean  respectively  the  same 
wherever  used,  and,  instead  of  relating  to  any  form  of  policies 
of  original  issue,  that,  on  the  contrary,  according  to  the  whole 
theory  of  the  non-forfeiture  part  of  the  section,  they  relate  en- 
tirely and  only  to  the  disposition  to  be  made  of  said  reserve  at  the 
date  of  lapse  agreeable  to  the  several  standards,  and  different 
rules  governing  the  different  Companies  regarding  "surrender 
"  charge,"  etc.  Furthermore,  it  will  be  found  that  the  same 
fund  and  the  same  reserve  intended  in  the  body  of  the  section  to 
be  applied,  first,  automatically  to  the  purchase  of  said  extended 
"term"  insurance  is  intended  to  he  applied,  alternatively,  to  the 
purchase  of  "paid-up"  insurance  for  the  then  (at  the  date  of 
lapse)  commuted  value  of  the  said  reserve  on  said  original  policy, 
and  the  converse  of  this  proposition  is  also  absolutely  true. 

I  trust  you  will  pardon  me  for  making  one  more  suggestion. 
Any  other  construction  leads  to  what  seems  to  me  an  absurdity, 
viz.,  that  paid-up  insurance  (something  which  could  by  no  possi- 
bility lapse)  was  specified  as  an  exception  to  cases  involving  lapse. 
In  other  words,  it  was  utterly  needless  and  useless  to  insert  paid- 
up  single-premium  insurance  originally  so  issued  as  an  exception 
to  the  requirement  of  this  section,  for  it  could  by  no  possibility 
ever  lapse.  Hence^  it  must  have  been  "term"  or  "paid-up"  in- 
surance for  the  then  (at  the  date  of  lapse)  commuted  value  of  the 
reserve  as  a  secondary  matter,  contracted  for  upon  any  method 
agreed  upon  by  the  insurer  and  the  insured,  which  was  intended 
to  be  and  was  excepted  from  the  requirements  of  that  section,  or 
which  excepted  the  policy  containing  it  from  the  need  of  having 
that  said  stipulation  set  forth  in  that  section.  And  I  would 
add  that  said  stipulation  was  placed  in  Section  450  in  order  to 
meet  the  requirements  of  the  several  different  standards  of  re- 
serve based  upon  different  tables  of  mortality  and  surrender 
charge  set  forth  in  the  laws  governing  Companies  of  other  States 
as  well  as  the  different  rul^  governing  foreign  Companies  re- 
garding these  matters  in  actual  practice. 

Believing  that  my  Company  was  in  the  veiy  front  rank  in  its 
efforts  to  give  policy-holders  an  equitable  provision  for  the  ap- 
plication of  the  reserve  to  the  purchase  of  either  extended  "term'* 


35 

or  "paid-up"  insurance  after  lapse  for  non-payment  of  premium, 
I  very  naturally  took  such  provision  as  the  model  which  must  be 
followed  in  all  policies  except  "tontine,"  unless  the  insurer  and 
the  insured  by  express  contract  adopted  some  other  method  for 
applying  the  reserve  to  the  purchase  of  "term"  or  "paid-up"  in- 
surance after  such  lapse.  In  other  words,  recognizing  the  neces- 
sity upon  the  other  Companies  to  comply  with  their  own  charters 
and  the  laws  of  the  States  under  which  they  were  organized,  and 
recognizing  the  solicitude  Avith  which  the  people  by  their  insti- 
tutions (State  and  Federal)  and  courts  by  their  interpretations 
thereof,  protected  the  right  and  power  and  liberty  of  contract, 
it  was  intended  to  only  compel  the  Companies  in  all  cases  other 
than  "tontine"  policies  to  apply  a  fair  proportion  of  the  reserve 
to  the  purchase  of  "paid-up"  or  extended  "term"  insurance  after 
lapse  for  non-payment  of  premium  ,and  unless  they  made  an  ex- 
press contract  in  that  behalf  with  the  insured  for  some  other 
method,  to  require  them  to  adopt  the  method  which  was  exem- 
plified by  the  policies  then  being  issued  by  the  Mutual  Benefit 
Life  Insurance  Company  as  above  quoted.  Certainly  I  never 
dreamed  of  putting  forward,  and  I  feel  sure  the  members  of  the 
Legislature  would  never  have  tolerated  for  one  moment,  the  po- 
sition that  all  Companies  must  adopt  the  provisions  of  my  own 
Company  in  that  behalf,  and  especially  as  no  other  Company  had, 
at  that  time,  ever  given,  by  law  or  otherwise,  the  entire  resjrve  for 
either  "term"  or  "paid-up"  insurance,  without  any  surrender 
charge,  and  therefore  it  was  intended  only  that  they  must  either 
do  that,  or  expressly  contract  with  the  insured  for  making  some 
other  application  of  the  reserve  after  lapse,  to  the  purchase  of 
"'  paid-up"  or  extended  "term"  insurance.  I  certainly  think 
the  language  of  the  section  and  that  part  quoted  above  means 
this  and  this  only.  I  know  that  is  what  we  understood  in  pre- 
senting and  urging,  and  what  the  members  of  the  Legislature 
understood  in  passing,  that  bill. 

Yours  truly, 

JAMES  MUNSELL,  JK., 
Principal  Agent  of  The  ^Mutual  Benefit  Life  Ins.  Co. 


36 

MK.  :\IcCUTCHEN.  I  will  now,  with  your  Honor's  permis- 
sion^ examine  Mr.  McLane. 

STATEMENT  OF  C.  A.  McLANE,  ESQ., 
Agenc}^  Director  of  the  New  York  Life  Insurance  Company. 

ME.  .AIcCUTCIlEN.  Q.  You  are  the  Agency  Director  of  the 
New  York  Life  Insurance  Company  on  this  Coast? 

A.     1  am. 

Q.  Do  you  knoAv  the  meaning  of  the  word  "tontine"  as  ap- 
plied to  insurance? 

A.  Yes,  sir.  It  is  a  feature  applied  to  almost  every  kind  of 
policy,  so  that  if  a  man  fails  to  pay  a  certain  premium  due,  he 
forfeits  everj'thing.      That  is  the  original  tontine  insurance. 

Q.     What  is  now  generally  understood  as  tontine  insurance? 

A.  It  is  now  known  as  semi-tontine  insurance.  It  is  now 
so  arranged  that  if  a  man  fails  to  pay  any  particular  premium,  he 
does  not  lose  his  interest  in  the  reserve,  but  loses  his  right  to  par- 
ticipate in  di^ddends. 

Q.  Are  policies  of  the  class  that  you  designate  as  semi-tontine 
ever  known  among  insurance  men  as  tontine? 

A.     Well,  yes.      They  are  usually  referred  to  as  tontine. 

Q.     They  are  the  only  tontine  policies  now  issued,  are  they? 

A.     Yes,  sir. 

Q.  And  they  are  the  only  tontine  policies  which  have  been 
issued  at  any  time  since  the  passage  of  the  Act  of  1879  by  the 
New^  York  Legislature? 

A.  Why,  no.  Full  tontine  policies  were  issued  up  to  1883  or 
1884. 

Q.     Where? 

A.  All  over.  There  is  a  law  of  New  York  that  permits  that. 
The  privilege  under  the  law  can  be  waived. 

ME.  THOMAS.  Q.  By  a  notation  in  red  ink  on  the  margin 
of  the  policy,  a  special  contract? 

A.     Yes,  sir. 

ME.  McCUTCHJ^:N.  Q.  But,  as  generally  understood  by 
Insurance  men,  a  semi-tontine  policy  or  oontract  is  a  tontine 
policy  or  contract? 

A.     Ye.i,  sir, 

Q.  That  is,  when  you  speak  of  tontine,  you  mean  the  semi- 
tontine  plan? 


*1^ 


a 


A.     Yes,  sir. 

Q.     Is  term  insurauce  ever  tontine  insurance? 

A.     No,  sir. 

Q.     Is  paid-up  insurance  ever  tonline  insurance?  , 

A.     No,  sir. 

Q.     Is  tontine  insurance  .ever  term  insurance? 

A.     No,  sir.  ■  -: 

Q.     Is  tontine  insurance  ever  paid-np  insurance? 

A.     No,  sir. 

'Q.  What  is  generally  und'erst-ood  by  the  term  "paid-up"  in- 
surance? 

A.  A  policy  that  is  fully  paid  up — no  more  premiums  to  be 
paid  upon  it. 

Q.  Is  that  understood  to  he  the  same  thing  as  a  single-pre- 
mium policy,  generally? 

A.     No,  sir. 

Q.  By  a  "paid-up"  policy  do  you  understand  one  that  is  is- 
sued in  lieu  of  any  other  policy? 

A.  Yes,  sir.  A  policy  issued  in  lieu  of  another,  or  one  in 
•which  the  insured  has  completed  all  of  his  payments. 

Q.     That  is  not  a  paid-up  policy  when  it  is  first  issued? 

A.     No,  sir.     It  becomes  paid-up  by  its  terms. 

Q.  When  you  speak  of  "paid-up  insurance,"  you  do  not  mean 
such  a  policy  as  I  indicated  in  my  last  question? 

A.     No,  sir. 

MR.  RHODES.  Q.  At  the  time  of  the  passage  of  this  law, 
was  there  any  such  thing  as  paid-up  insurance,  except  when  it 
resulted  from  the  operation  of  the  issuing  of  the  first  policy  and 
the  operation  of  the  law  upon  that? 

A.  No,  sir,  unless  you  construe  a  single-payment  policy  as  a 
paid-up  policy. 

MR.  THOMAS.     Q.     Was  it  so  called  by  Insurance  people? 

A.     They  called  it  a  single-payment  or  single-premium  policy. 

Q.  And  they  referred  to  a  "paid-up"  policy  as  something 
that  was  issued  as  a  sequel  to  a  policy  theretofore  issued? 

A.     Yes,  sir. 

Q.  You  regard  tontine  insurance  as  a  system,  a  principle,  do 
you? 

A.     Yes,  sir. 

Q.     Which  may  be  applied  to  any  policy  of  insurance? 


:J5JiH28 


38 


A.     Yes,  sir. 

Q.  And  paid-up  insurance,  as  that  term  is  used,  is  a  plan  not 
including  original  insurance,  but  as  I  have  stated? 

A.     Yes,  sir. 

Q.  The  difficulty  in  all  this  matter  is,  in  confining  the  prin- 
ciple which  may  be  applied  to  any  pelicy  to  a  simple  plan  that 
stands  alone? 

A.  ■  That  is  it. 

Q.  There  is  a  liability  of  confounding  the  two.  In  all  your 
rate-books,  there  is  no  place  where  it  calls  for  a  paid-up  policy,  is 
there  ? 

A.     No,  sir. 

Q.  When  the  rate-card  is  issued,  it  always  says,  "Rates  for  a 
single-premium  policy"  and  not  for  a  paid-up  policy? 

A.     Yes,  sir. 

Q.  And  all  rates  are  given  for  such  policies  under  the  head 
of  "single-premium  policies"? 

A.     Yes,  sir. 

MR.  FIELD.     Q.     There  is  no  exception  to  that,  is  there? 

A.     No,  sir. 

MR.  RANKIN.  Q.  When  did  the  Company  first  begin  is- 
suing what  you  have  denominated  a  semi-tontine  policy? 

A.     I  thing  about  1884. 

Q.     Was  that  form  of  insurance  in  vogue  before  that  time? 

A.  Not  to  my  knowledge.  Prior  to  that  time,  there  had 
been  the  full  tontine,  that  is  to  say,  the  tontine  principle  had 
been  applied  to  the  reserve  and  the  dividends;  the  semi-tontine 
just  removes,  so  to  speak,  the  tontine  principle  from  the  reserve, 
and  applies  it  to  the  di\ddends,  or  surpluis. 

Q.  That  was  the  only  change  made  from  the  full  tontine  to 
the  semi-tontine? 

A.     That  was  the  only  change  made. 

THE  COMMISSIONER.  Q.  How  long  have  you  been  in 
business,  Mr.  McLane? 

A.     Since  1880. 

Q.  In  1880,  you  say,  there  was  no  such  thing  as  paid-up  in- 
surance known  among  actuaries  and  Insurance  people  generally? 

A.     No,  sir.     I  do  not  say  that. 

Q.     Do  you  mean  to  say  that  the  Insurance  actuaries  of  the 


31) 

country  had  nothing  in  1880  that  they  considered  a  paid-up 
policy? 

A.  Unless  they  considered  single-premium  policies  as  paid-up 
policies. 

Q.  But  they  did  so  consider  them,  did  they  not?  It  was  so 
oonsidei-ed  among  actuaries?  Did  they  not  all  consider  single- 
premium  insurance  as  paid-up  insurance? 

A.  Of  course  any  policy  upon  which  the  insured  has  made 
all  payments  and  under  which  the  Company  must  pay  when  he 
dies,  is  a  paid-up  policy. 

Q.  As  a  matter  of  fact,  tontine  insurance  as  it  existed  in  1880, 
and  this  semi-tontine  insurance  that  you  speak  of,  are  entirely 
different,  so  far  as  the  terms  are  concerned,  are  they  not? 

A.     They  are  different  in  this  way: 

Q.  Not  the  features,  but  the  name.  When  you  refer  to  "ton- 
tine insurance"  and  to  "semi-tontine  insurance,"  you  mean  two 
entirely  different  systems,  do  you  not?  They  are  two  different 
names,  are  they  not? 

A.  Certainly,  they  are  two  different  names;  one  is  whole  ton- 
tine and  the  other  is  half  tontine. 

Q.     In  1880  had  you  ever  heard  of  a  semi-tontine  policy? 

A.     No,  sir. 

Q.     That  term  was  not  in  existence  until  then,  was  it? 

A.     No,  sir. 

MR.  :\IcALLTSTER.  Q.  They  were  both  special  contracts, 
were  they  not? 

A.     Yes,  sir. 

Q.     As  to  what  disposition  should  be  made  of  the  reserve? 

A.     Yes,  sir. 


THE  COMIMISSIONER.  If  you  have  any  further  testimony, 
gentlemen,  you  may  produce  it. 

MR.  TIIOIMAS.  I  will  proceed  with  Mr.  Forbes  now,  if  it  is 
agreeable. 

THE  COMMISSIONER.     Very  well. 


40 

STATEMENT  OF  A.  B.  FOEBES,  ESQ., 

General   Agent   of   the   Mutual   Life   Insurance    Company,    of 

New   York. 

MR.  THOMAS.     Q.     Mr.  Forbes,  how  long  have  you  been  in 
the  Insurance  business? 

A.     Since  18G9. 

Q.     On  this  Coast? 

A.     Yes,  sir. 

Q.     You  are  now  the  General  Agent  of  the  Mutual  Life  In- 
surance Company,  of  New  York? 

A.     Yes,  sir.     And  have  been  for  all  of  that  period. 

Q.     The  Mutual  Life  Insurance  Company  of  New  York  does 
not  issue  tontine  poKcies,  does  it? 

A.     No,  sir. 

Q.     You  know  what  the  meaning  of  the  term  "tontine"  is, 
however,  do  vou  not? 

A.     Yes,  sir.     It  has  been  well  explained  here  by  Mr.  Landers 
and  Mr.  Donnels. 

Q.     You  agree  with  the  definition  of  the  term  as  given  by 
those  gentlemen,  do  you? 

A.     Yes,  sir.     I  agree  with  their  definition. 

Q.     Does  your  Company  issue  term  policies? 

A.     It  does. 

Q.     Is  tontine  insurance  ever  term  insurance? 

A.     It  is  never  so  consiidered,  sir. 

Q.     Do  you  know  what  paid-up  insurance  is? 

A.     I  do. 

Q.  Do  you  call  a  policy  that  is  issued  upon  payment  of  a  sin- 
gle premium  a  paid-up  policy?      Is  that  paid-up  insurance? 

A.     No,  sir. 

Q.     What  do  you  call  it? 

A.     Full-paid  insurance. 

Q.  Is  it  sometimes  called  single-premium  or  one-premium 
insurance? 

A.  It  is  sometimes  called  single-premium  or  one-premium 
insurance,  yes. 

Q.  As  you  understand  the  term  "paid-up,"  does  it  not  refer  to 
something  which  is  issued  as  a  substitute  for  some  previous  eon- 
tract  existing  between  the  parties? 


41 

A.     Always.     That  is  what  paid-iij)  insurance  is. 

Q.     Something  that  is  issued  by  virtue  of  a  covenant? 

A.     By  virtue  of  a  covenant  in  existence,  yes. 

MR.  TIIO:\IAS.     I  think  that  is  all,  Mr.  Forbes. 

MR.  FORBES.  I  would  like  to  say  one  word  more,  Mr.  Com- 
missioner? 

THE  COMMISSIONER.  Certainly.  You  are  at  liberty  to 
say  anything  you  desire  to  say.  I  am  anxious  to  hear  from  you 
and  all  the  gentlemen  here  very  fully. 

MR.  FORBES.  I  would  Kke  to  say  that  there  is  another  term 
used  by  Insurance  men  that  has  its  own  particular  significance. 
The  term  "limited-payment"  insurance  differs  again  from  "sin- 
gle-payment." But  they  all  bear  the  same  characteristics,  the 
full-paid,  the  single-payment 

THE  COMMISSIONER.  Q.  (Interrupting)  Whenever  a 
policy  is  fully  paid,  of  course  there  is  no  reason  for  a  forfeiture. 
There  could  be  no  forfeiture  because  there  are  no  premiums  to  be 
paid. 

A.  That  is  correct,  and  our  paid-up  policies  carry  that 
feature. 

Q.  Is  there  any  other  insurance,  Mr.  Forbes,  upon  which 
there  is  no  forfeiture,  generally  recognized  among  Insurance 
men,  for  non-payment  of  premiums,  except  tontine,  term,  and 
paid-up? 

A.     I  should  think  single-payment. 

Q.     That  is  the  same  as  ])aid-up? 

A.     That  is  full  paid. 

Q.  Is  there  any  other  kind  of  insrance  known  to  you,  or 
was  there  in  1880,  upon  which  there  could  not  be  a  forfeiture 
for  non-payment  of  the  premium,  except  the  three  I  have  men- 
tioned? 

A.  No,  sir,  I  do  not  recollect  any,  except  that  in  former  times 
our  endowment  policies  specified  that  for  every  payment  after  so 
many  payments,  the  insured  would  be  entitled  to  receive  such  a 
proportion  of  the  amount  paid. 

Q.  And  that  was  a  term  insurance,  was  it  not.  where  the  pay- 
ments must  be  made  during  the  term? 

A.  Yes,  sir.  You  have  it  all  here  before  you,  Mr.  Commis- 
sioner. 


42 

Q.  I  observe  that  those  are  the  three  classes  that  the  Legisla- 
ture excepts  from  the  general  rnle  as  made  by  Section  450  of 
the  Civil  Code,  that  all  policies  should  contain  the  specified  pro- 
vision? 

A.  I  freely  say  that  I  do  not  know  what  the  minds  of  the 
legislators  were  in  the  premises. 

^THE  COMMISSIONER.     I  think  it  would  be  rather  hard 
for  any  of  us  to  tell  what  was  in  the  minds  of  the  legislators. 

Are  there  any  further  questions  to  be  asked  Mr.  Forbes?  If 
not,  I  will  ask  Mr.  Munsell  a  few  questions  relative  to  this  Act 
of  the  Legislature. 


STATEMENT  OF  JAMES  MUNSELL,  JE.,  ESQ., 
Principal  Agent  of  the  Mutual  Benefit  Life  Insurance  Company. 

THE  COMMISSIONER.  Q.  You  told  me,  Mr.  Munsell, 
that  you  would  get  me  a  copy  of  the  Act  as  originally  presented 
to  the  Legislature.     Have  you  that  Act  now? 

A.     Have  I  a  copy  of  the  bill? 

Q.  Yes.  A  copy  of  the  bill  as  originally  presented  to  the 
Legislature? 

A.  I  was  mistaken  about  having  that,  Mr.  Commissioner.  I 
have  found,  however,  that  that  was  published  in  the  "Coast  Re- 
view." There  were  two  bills  originally  proposied.  Senate  Bills 
Nos.  377  and  378,  which  passed  the  Senate,  and  they  were  after- 
wards consolidated  and  passed  as  amendments  to  Assembly  Bill 
99,  to  which  I  have  made  reference  in  my  letter  to  you  of  yester- 
day. 

Q.  You  understand  me  as  wanting  the  bill  as  originally 
proposed  ? 

A.     Not  as  it  passed? 

Q.     No.     As  you  originally  proposed  it. 

A.  As  I  have  stated,  there  were  two  bills,  Nos.  377  and  378, 
and  they  were  published  in  extenso  in  the  "Coast  Review." 

Q.  If  you  can  get  a  copy  of  the  bill  proposed  by  you,  I  would 
like  to  have  it.  As  finally  passed,  of  course,  I  can  get  it  from  the 
Code. 

A.     Very  well.     Regarding  the  meaning  of  the  terms  "paid- 


43 

np"  insurance,  and  "term"  insurance,  used  in  Section  450,  I 
would  say  that  I  think  that  the  same  construction  must  be  placed 
upon  these  technical  expressions  "paid-up  insurance"  and  "term 
insurance"  used  in  Section  450  of  the  Civil  Code,  as  is  given  to 
sucli  technical  expressions  by  the  Mutual  Benefit  Life  Insurance 
Company  and  other  Companies  in  the  treatment  of  lapsed  poli- 
cies and  m  the  settlement  of  claims  in  actual  practice  in  the 
ordinary  course  of  business. 

MTv.  liANKIN.  Q.  Mr.  Munsell,  I  would  like  to  ask  you 
what  you  meant  by  the  woxd  "other"  when  you  used  it  in  that 
clause  of  the  section,  "other  term  or  paid-up  insurance"? 

A.  It  was  the  intention  to  frame  a  law^  emibling  foreign  com- 
panies governed  by  different  laws  of  other  States  with  different 
"standards  of  reserve,"  "mortality,"  etc.,  to  comply  with  it.  For 
instance,  the  State  of  Maine  had  a  somewhat  similar  non-forfeit- 
iire  law  under  which  it  gave  "other"  extended  "term"  insurance, 
or,  alternatively,  "upon  surrender  of  the  original  policy  within 
a  given  time  aftex  lapse,"  "other  paid-up  insurance,"but  of  a  very 
different  standard,  and,  furthermore,  unlike  the  provision  of  this 
section,  the  Maine  law  authorized  a  "surrender  charge"  to  be 
m.^de  by  the  Company,  of  25  per  cent,  of  the  reserve,  or,  in  other 
words,  a  deduction  of  one-fourth  of  the  reserve.  Then  again, 
the  State  of  Massachusetts  also  had  a  vS^imilar  non-forfeitnre  law 
passed  in  1862,  providing  for  still  other  extended  "term"  insur- 
ance, or,  alternatively,  "paid-up  insurance,"  or  rather  by  still  an- 
other standard  of  mortality,  and  it  provided  also  that  the  original 
policy  must  be  fully  surrendered  to  the  Company  within  a  cer- 
tain period  (if  a  "paid-up"  instead  of  extended  "term"  insurance 
■was  desired)  which  la"w  also  provided  for  a  "surrender  charge" 
by  the  Company  of  20  per  cent.,  that  is,  a  deduction  of  one- 
iifth  of  the  reserve.  ]5ut  the  Massachusetts  law  was  amended  in 
1880,  I  think,  shortly  after  the  passage  of  said  section  450 
amending  said  Section  451 — the  law  of  Massachusetts  being 
changed  so  that,  instead  of  giving  automatic  "term"  insurance 
for  the  value  of  "four-fifths"  of  the  reserve,  the  reserve,  less  a 
certain  "surrender  charge,"  was  required  to  be  applied  automati- 
cally to  the  purchase  of  "paid-up"  insurance  for  a  reduced 
amount,  and  thus,  I  believe,  unquestionably,  for  the  first  time  in 
the  history  of  life  insurance  in  this  country,  by  law  or  otherwise. 


44 

providing  for  "automatic"  paid-up  insurance  on  ordinary  life 
policies. 

MR.  MeCUTCHEN.  With  reference  to  the  uncertainty 
spoken  of  by  Mr.  Rankin,  I  understand  the  word  "other'-  to 
mean,  other  than  as  provided  in  the  section  itself;  other  than 
vhat  was  proposed  by  the  body  of  the  bill. 

THE  COMMISSIONER.  I  desire  to  state  to  the  gentlemen 
present  that  the  reason  I  want  this  bill  as  originally  drawn  is, 
that  T\hen  it  was  so  drawn,  it  was  intended  to  cover  every  con- 
tJ-aot  of  insurance  within  the  State.  But  there  was  opposition 
to  it  on  llie  part  of  s.ome  of  the  Companies  writing  these  classes 
of  insurance,  and  they  threatened  to  oppose  the  bill,  and  after  a 
time  got  to  Sacramento,  and  these  exceptions  were  inserted. 
Therefore,  I  would  like  to  get  the  original  bill,  to  see  just  what 
was  therein  provided  for. 

Mil.  jI.IUNSELL.  I  will  endeavor  to  get  it.  But  I  desire  to 
state  now  most  emphatically  that  there  is  absolutely  no  truth  in 
the  statement  as  reported  to  you,  and  also  that  no  material 
■change  was  made  in  he  bill  in  that  regard.  The  stipulation  in 
thr3  orjgijial  bills,  Mr.  Commissioner,  was  worded  very  nearly 
like  this:  "unless  otherwise  specifically  contracted  between  the 
int:urer  and  the  insured." 

MR,  THOMAS.  If  you  had  left  it  that  way,  there  would  not 
have  lieen  any  trouble  at  all. 

MR.  MUNSELL.  I  will  explain  all  the  ground  there  was 
fcr  this  report.  I  came  down  to  San  Francisco  with  the  rest  of 
the  people  after  the  bills  had  been  proposed,  and  I  met  Colonel 
Ilawes,  then,  as  now,  connected  with  the  New  York  Life  Insur- 
ance Company,  one  of  the  few  Companies  which  had  qualified, 
under  a  slight  change  made  in  1878  in  the  obnoxious  law?  of 
1874,  two  years  previous.  He  jokingly  said  to  me:  "Munsell, 
they  say  there  is  a  joker  in  the  bill."  I  said:  "How  is  that, 
■Ouloufil'*"  "They  say,"  he  stated,  "that  in  that  provision  with 
regard  to  special  contracts "  and  I  interrupted  him  by  say- 
ing "1  understand  that  report,  and  I  am  going  to  amend  my  own 
bill  to-morrow  morning."  He  said:  "What  are  you  going  to 
■say?"  I  replied:  "I  am  going  to  say  exactly  what  is  meant  in 
the  pK) vision  for  'special  contracts,'  viz.,  that  unless  Companies 
desire  to  coinply  with  tlie  provisions  in  the  body  of  the  section 


45 

itself,  they  must  give  this,"  and  I  drew  from  my  pocket  an 
iunendment  which  constitutes  that  special  stipulation  with  re- 
gard to  "tontine"  or  other  "term"  or  "paid-up"  insurance,  other 
tlian  that  nientioned  in  the  bo<:ly  of  the  section.  The  said  stipu- 
lation as  first  proposed  was  worded  as  follows: "unless  speci- 
fically contracted  between  the  insurer  and  the  insured."  I  sub- 
milted  the  amendment,' the  next  week  it  was  adopted,  and  that  is 
all  there  was  to  it.  So  it  should  be  clearly  understood  that  the 
Commissioner  has  been  misinformed,  that  there  was  no  material 
change  made  in  the  bill  in  this  regard,  and  that  the  original 
bill  was  not  intended  to  cover  every  contract  in  the  State. 

THE  COiMMISSIONER.  Q.  If  the  Legislature  intended  to 
adopt  it  in  that  way,  and  let  the  Insurance  Companies  make  any 
sort  of  contract  they  saw  lit,  why  was  this  limitation  put  there? 
You]'  idea  was  to  let  the  policy-holder  and  the  insurance  com- 
pany make  any  sort  of  contract  they  saw  fit,  as  I  understand  you. 
Why  was  it  limited  in  that  way? 

A.  As  explained  in  my  letter  to  you  of  yesterday,  as  no 
other  Company  had  ever  given  the  entire  reserve,  the  bill  was 
limited  in  that  way  in  order  to  enable  many  Companies  of  other 
States,  which  were  governed  by  different  laws  and  different 
standards  of  reserve,  and  different  mortality  tables,  and  whose 
chartei's,  in  many  cases,  made  it  impossible  for  them  to  comply 
with  the  provisions  of  our  then  existing  laws  of  187-4.  to  return  to 
California,  from  which  State  they  were  compelled  to  retire,  owing 
to  the  oi)noxious  laws  passed  in  1874.  Furthermore,  I  would 
state  Ihat  in  early  days  there  was  no  provision  whatever  made  in 
the  contracts  of  many  Companies  for  any  paid-up  insurance  in 
case  of  la})se.  The  body  of  Section  450  was  intended  to  prevent 
the  making  of  such  blank  contracts  thereafter.  I  know  of  two 
such  blank  contracts  now  in  force,  without  any  ])rovision  what- 
ever for  "paid-ups"  in  case  of  lapse,  one  of  them  with  Mr.  Francis 
of  St.  Helena.  California,  and  the  other  with  Mr.  Greely  of  Oak- 
land, l)OTh  of  which  policies  ha])])en  to  be  in  the  Xew  York  Life. 
HcweAcr,  I  have  told  both  of  these  gentlemen  that  I  believed 
that  Company  would  treat  them  as  it  does  other  member?  at 
this  time.  But  the  intention  on  the  part  of  the  Legislature  and 
myself  wus  not  only  to  give  the  "tontine"  Companies  reasonable 
letway,  but  also  to  say,  as  ])rovided  in  the  body  of  the  section, 
that  no  In.'^urance  Company  should  thereafter  issue  such  "blank" 


46 

contracts,  absolutely  forfeiting  the  reserve  without  the  consent 
of  the  insuied,  except  under  a  special  contract.  Mr.  Coinmis- 
sioner,  yoii  know  that  some  time  ago  I  filed  with  you  a  copy  of 
my  brief  to  members  of  the  Legislatu're  in  1880,  in  support  of  the 
said  changes  then  effected  under  Section  450.  I  wish  you  would 
please  have  it  read  now  by  the  Secretary,  as  that  quite  fully  ex- 
plains all  tliese  matters. 

THE  COMMISSIONEE.  If  it  was  filed  in  the  office,  I  have 
it  pu't  <'iway. 

MR.  MUNSELL.  It  is  just  about  the  same  as  this.  It  is  my 
argument  for  the  change  which  was  submitted  to  every  member 
of  the  Legislature.  They  all  received  and  read  it,  and  hence 
must  have  clearly  understood  it. 

THE  COMMISSIONER.  I  do  not  think  you  filed  that,  Mr. 
Mumell.     If  it  is  on  file,  of  course  you  can  have  it. 


MR.  RHODES.  Mr.  Commissioner,  I  would  like  to  ask  Mr. 
Eield  a  few  questions. 

THE  COMMISSIONER.  Very  well.  We  will  hear  from  Mr. 
Field. 

0 

STATEMENT  OF  HENRY  K.  FIELD,  ESQ., 

General   Agent   of  the  New  England  Mutual   Life   Insurance 

Company. 

MR.  RHODES.  Q.  How  long  have  you  been  engaged  m  the 
Life  Insurance  business,  Mr.  Field? 

A.  Since  the  early  '70's.  I  have  been  here  in  San  Francisco 
since  1881. 

Q.     Of  what  Company  arc  you  in  charge  here? 

A.  Th*e  New  England  Mutual  Life  Insurance  Company,  of 
Boston,  Massachusetts. 

Q.  Are  you  familiar  with  tlie  diffe'rent  forms  of  insurance, 
lontine,  full-paid,  term,  paid-up,  etc.? 

'A.     I  think  I  am,  sir. 

Q.  Are  you  familiar  with  their  meaning  as  understood  among 
Insurance  men? 

A.     T  am,  sir. 


Q.     Will  you  give  me  the  definitions  of  those  terms? 

A.  If  I  were  to  define  them,  I  should  simply  be  repeating 
what  has  already  been  said  here  several  times. 

Q.  You  agree  with  the  gentlemen  who  preceded  you  as  to  the 
meaning  of  the  term  "tontine  insurance"? 

A.     Yes,  sir. 

Q.  And  also  as  to  the  meaning  of  the  term  "semi-tontine  in- 
surance"? 

A.     Yes,  sir. 

Q.  Did  you  know  anything  of  semi-tontine  insurance  when 
you  first  went  into  the  Insurance  business? 

A.  No,  sir.  My  impression  is  that  I  first  heard  of  that  in 
1883. 

Q.  How  about  the  other  two  forms  of  insurance  mentioned, 
full-paid  insurance  and  term  insurance? 

A.  They  have  been  correctly  defined  in  the  way  that  I,  as  an 
Insurance  man,  have  always  understood  them.  I  never  had  any 
other  idea  of  them. 

MR.  McCUTCHEX.  Q.  Mr.  Field,  do  you  understand  that 
the  semi-tontine  was  simply  the  application  of  the  tontine  fea- 
ture to  a  policy  having  different  provisions  than  the  original  ton- 
tine policy  contained? 

A.  I  think  the  semi-tontine  is  a  feature  of  tontine.  It  is 
just  what  it  is  called,  a  semi-tontine,  half  tontine. 

Q.  Is  not  a  semi-tontine  policy  one  which  contains  the  ton- 
tine feature,  but  gives  to  the  policy-holder  certain  privileges 
which  the  original  tontine  policy  did  not  give  him? 

A.     Yes,  sir.     It  is  a  modification  of  the  original  tontine. 

Q.  It  is  more  favorable  to  the  insured  than  the  original 
tontine? 

A.     Yes,  sir. 

Q.  Did  it  take  from  the  policy-holder  anything  that  the  orig- 
inal tontine  gave  him? 

A.     No,  sir. 

Q.     It  gave  him  additional  privileges? 

A.     Yes,  sir. 


48 

An  asrreement  was  here  reached  between  the  various  Insurance 
Companies  represented  that  the  expense  of  taking  stenograph.- 
ically  and  writing  the  proceedings  now  being  had  before  the 
Honorable  Commissioner,  should  be  prorated  among  the  various 
Insurance  Companies  represented. 

A  recess  was  taken  at  this  point  until  two  o'clock  P.  M. 


49 


AFTERNOON    SESSION. 

TUESDAY,  JANCARY  17,  1898.     2  P.  M. 

MR.  I\ANKIN.  I  would  like  to  inquire,  Mr.  Commissioner, 
whether  there  is  any  question  as  to  whether  you  are  exercising 
judicial  powers  in  proceeding  as  you  are  now  doing? 

THE  COMMISSIONER.  I  do  not  know  what  kind  of  power 
it  may  be  denominated. 

MR.  THOjMAS.     It  is  surely  a  very  strong  power. 
THE  COMMISSIONER.     I  certainly  have  been  slow  in  exer- 
cising the  power  whiich  I,  as  an  officer,  possess. 

MR.  THOMAS.  The  Insurance  Commissioner  is  called  an 
executive  officer  by  the  Code. 

THE  COMMISSIONER.     I  could  have  acted  without  giving 
you.  gentlemen  notice,  but  I  did  not  want  to  do  it.     I  wanted  to 
hear  from  you,  and  to  get  the  version  of  each  and  every  one  of 
you  of  this  matter  before  acting.     I  did  not  think  it  was  quite 
right  to  investigate  the  qilestion  alone,  and  then  possibly  act 
against  you,  but  preferred  to  give  you  a  full  hearing,  and  then, 
if  I  should  ultimately  give  a  decision  against  you,  it  would  be 
after  such  a  full  hearing.     I  desire  very  much  to  hear  the  argu- 
ment of  each  of  the  Counsel  present.     I  want  to  hear  from  Mr. 
Thomas,  among  others,  whose  position,  as  I  understand  it,  is  that 
any  Insurance  Company  can  issue  any  kind  of  policy  it  pleases, 
80  long  as  it  has  a  contract  in  the  policy  stating  the  terms  clearly. 
If  that  is  the  law,  it  simplifies  the  matter  very  much.     If  that  is 
not  the  law — and  I  will  say  that  my  present  view  is  the  other 
way — I  intend  to  take  the  policies  of  the  Companies  here  and 
make  an  examination  of  them,  to  see  whether  they  comply  with 
the  terms  of  the  law.     Then  I  desire  you  gentlemen,  in  your 
argunjents,  to  consider  this  other  question  of  annual  licenses. 

MR.  THOMAS.     So  far  as  the  Companies  I  represent  are  con- 
cerned, if  it  were  possible  to  avoid  it,  they  would  have  pre- 
ferred not  to  raise  the  question  last  named  by  your  Honor. 
THE  COMMISSIONER.     I  will  simply  say  that  it  has  looked 


50 

to  rae  as  if,  one  view  being  taken  of  that  question,  you  are  out  of 
the  State,  anyway. 

MR.  THOMAS.  Do  you  mean  by  that  that  there  should  be 
any  greater  penalty  than  that  the  Companies  should  pay  the 
licenses  which  have  accrued  in  the  past? 

THE  COMMISSIONEE.  The  question  of  penalties  would 
not  affect  the  law.  So  far  as  the  Life  Insurance  Companies  are 
concerned,  there  would  be  no  penalties.  But  there  are  other 
Companies  in  the  State. 

MR.  McCUTCHEN.  Before  the  Counsel  present  proceed 
with  a  discussion  of  the  matters  before  your  Honor,  I  desire  to 
ask  a  few  questions  of  one  or  two  witnesses  present. 

THE  COMMISSIONER.  Very  well.  Proceed.  I  want  to 
get  all  the  evidence  I  can. 

ME.  McCUTCHEN.  I  will  call  upon  Colonel  Hawes,  of  the 
New  York  Life  Insurance  Company. 


STATEMENT    OF   ALEXANDER   G.    HAWES,   ESQ., 
Manager  of  the  New  York  Life  Insurance  Company. 

MR.  McCUTCHEN.  Q.  Colonel  Hawes,  you  have  been 
connected  with  the  New  York  Life  Insurance  Company  for  thirty 
odd  years  in  this  city,  have  you  not? 

A.     For  nearly  thirty  years. 

Q.  Are  you  familiar  with  the  foi-m  of  insurance  known  as 
^'tontine  insurance"? 

A.     Yes,  sir. 

Q..  And  also  with  that  which  is  among  Insurance  men  known 
as  "semi-tontine  insurance"? 

A.  Yes,  sir;  semi-tontine,  or  limited  tontine,  which  is  practi- 
cally the  same  thing. 

Q.  What  is  the  difference  between  semi-tontine  insurance 
and  full  tontine  insurance? 

A.  Full  tontine  policies  constitute  a  form  of  insurance  by 
which  the  insurants  are  placed  in  classes,  according  to  the  year 
of  their  entry  and  the  kinds  of  policy  they  take  out.  The  princi- 
ple of  tontine  is  applied  to  the  whole  policy,  to  the  dividends  on 
the  policy  and  to  the  reserve.     So  a  man  who  takes  out  a  policy 


51 

on  the  tontine  plan  receives  not  only  the  dividends  upon  the 
policies  of  those  policy-holders  who  die  and  those  who  give  up 
their  policies,  but  also  receives  his  share  of  the  reserves.  The 
limited  tontine  plan  modifies  that  to  the  extent  that  the  reserves 
are  given  in  the  form  of  paid-up  insurance  to  the  insured. 

Q.  The  reserves  are  given  in  the  form  of  paid-up  insurance 
to  the  policy-holder  who  allows  his  policy  to  lapse  before  the 
expiration  of  the  tontine  period? 

A.     Yes,  sir. 

Q.  So  far  as  the  Company  is  concerned,  there  is  no  ad- 
vantage to  it  in  semi-tontine  insurance  over  the  full  tontine 
insurance,  is  there?  The  advantage  is  all  with  the  insured,  is 
it  not? 

A.     Yes,  sir. 

Q.  The  semi-tontine  policy  contains  all  the  features  of  the 
tontine  policy,  and  in  addition  to  that  reserves  to  the  insured 
the  right  to  a  paid-up  policy  for  the  amount  which  his  reserve 
will  purchase? 

A.     That  is  correct. 

ME.  THOMAS.  Q.  It  is  still  a  form  of  tontine  insurance, 
is  it  not? 

A.     Yes,  sir. 

Q.  A  little  more  lavorpble  to  the  insured  than  the  original 
tontine? 

A.     Yes,  sir. 

Q.  When  you  speak  of  tontine  insurance,  you  mean  the  prin- 
ciple of  tontine,  entered  into  amy  life  insurance  policy,  do  you 
not? 

A.     Yes,  sir. 

0 

MR.  McCUTCHEN.     I  would  like  to  ask  Mr.  Landers  a  few 
questions  now,  in  the  same  line  of  examination. 
THE  COMMISSIONER.     Very  well. 


-)'_' 


FURTIIKK    STATEMENT    OF    JOHN    LANDERS,    ESQ., 

Oenoral  Agent  of  the  Manhattan  Life  Insurance  Company,  of 

New  York. 

MR.  McCUTCHEN.     Q.     Mr.  Landers,  you  have  heard  the 
questions  which  I  have  just  put  Colonel  Hawes? 

A.     Yes,  sir. 

Q.     And  his  answers  thereto? 

A.     Yes,  sir. 

Q.  In  reference  to  the  difference  between  tontine  insurance 
and  semi-tontine  insurance? 

A.     I  have  heard  it  all,  yes,  sir. 

Q.  Is  there  any  other  difference  between  the  two  than  as 
given  by  Colonel  Hawes? 

A.     None  whatever. 

Q.     The  difference  is  all  for  the  benefit  of  the  insured? 

A.     Yes,  sir. 

Q.  In  other  words,  the  semi-tontine  policy  gives  to  the  in- 
sured additional  privileges  over  those  given  to  him  by  the  ton- 
tine policy? 

A.     Yes,  sir. 

MR.  HAWES.  I  would  like  to  add  something  to  what  I  have 
already  said,  Mr.  Commissioner. 

THE   COMMISSIONER.     You  may  do  so. 


FURTHER  STATEMENT  OF  ALEXANDER  0.  HAWES, 

ESQ., 

Manager  of  the  New  York  Life  Insurance  Company. 

MR.  HAWES.  I  would  like  to  say,  in  addition  to  what  I  have 
already  said,  that  the  semi-tontine  policy,  the  limited-tontine 
policy,  and  what  is  called  the  accumulation  policy  are  all  the 
same — they  are  all  tontine. 

MR.  McCUTCHEN.  Q.  Then  a  policy  issued  upon  what 
you  call  the  semi-tontine  plan,  and  a  policy  issu.ed  upon  the 
limited-tontine  plan,  are  policies  which  give  tontine  insurance, 
r.re  they? 

A.     Yes,  sir. 


53 

Q.  Vdii  rt'^fard  all  those  forms  of  policies  as  providing  ton- 
tine insurance? 

A.     Yes,  sir. 

il.  And  that  is  the  general  understanding  of  it  among  Insur- 
ance men? 

A.     Yes,  sir. 

^IK.  RANKIN^.  Q.  Do  you  distinguish  between  paid-up 
insurance,  or  a  policy  which  is  a  paid-up  policy,  and  a  non- 
participating  paid-up  policy?     If  so,  what  is  the  difference? 

A.  There  may  be  no  difference.  They  are  both  paid-up 
policies.  But  a  non-participating  paid-up  policy  is  one  which 
does  not  participate  in  the  profits  of  the  Company,  the  dividends. 

Q.     Whereas  a  paid-up  policy  may  ? 

A.     Yes,  sir. 

ME.  ERODES.  Q.  A  paid-up  policy  ordinarily  does  not 
participate  in  the  profits? 

A.     It  is  a  special  contract  provision. 

ME.  :\rcCUTCHEX.  Q.  Has  the  form  of  policy  used  by 
the  New  York  Life  Insurance  Company  since  1880,  to  your 
knowledge,  ever  been  questioned  by  the  Insurance  Commissioner 
of  this  State? 

A.     No,  sir. 

THE  COMMISSIOXEE.     That  is  to  say,  up  to  a  recent  date? 

ME.  McCUTCHEN".  Up  to  within  six  months,  I  meant  my 
question  to  imply. 

Q.  ITas  it  ever  been  represented  to  you,  or,  so  far  as  you  are 
advised,  any  representative  in  your  Company,  that  the  form  of 
policy  employed  by  your  Company  in  this  State  was  not  in  ac- 
cordance with  the  provisions  of  the  laws  of  this  State? 

A.     No,  sir. 

ME.  THO^IAS.  Q.  What  is  your  knowledge  of  all  the 
policies  issued  by  the  New  York  Companies?  Are  they  the  same 
in  that  respcet? 

A.     So  far  as  I  know. 

Q.  That  is  to  say,  you  have  never  heard  the  use  of  any  of 
them  in  this  State  questioned? 

A.     No,  sir. 

ME.  THO^FAS.     What  have  you  to  say  to  that,  Mr.  Landers? 

ME.  LANDEES.     To  my  knowledge,  that  is  the  fact. 


54 


MR.  THOIMAS.  No  Insurance  Commissioner  in  this  State 
has  ever  raised  the  question,  until  it  was  raised  by  Commissioner 
Clunie  last  summer? 

MR.  LANDERS.     No,  sir;  it  has  never  been  raised. 


FURTIIKR  STATEMENT  OF  H.  C.  DONNELS,  ESQ., 
Cashier  of  the  Home  Life  Insurance  Company,  of  New  York. 

MR.  McCIITCHEN.  Q.  Mr.  Bounds,  you  have  heard  the 
questions  propounded  to  Colonel  Hawes,  and  his  answers  thereto, 
concerning  the  distinction  betwe'en  tontine  insurance  and  semi- 
tontine  insuramce? 

A.     Yes.  sir. 

Q.  Are  Colonel  Hawes's  answers  correct,  according  to  your 
understanding  of  the  terms? 

A.     Yes,  sir. 

Q.  Then  you  understand  that  a  policy  which  is  known  among 
Insurance  men  as  semi-tontine  or  limited-tontine  is  a  policy  pro- 
viding for  tontine  insurance? 

A.     Yes,  sir. 

Q.     In  one  of  its  forms? 

A.     In  one  of  its  various  forms,  yes,  sir. 

Q.  And  what  do  you  say  about  the  policies  employed  by  the 
Home  Life  Insurance  Company  in  its  business  in  this  State;  has 
any  objection  ever  been  made  to  them,  so  far  as  you  are  advised, 
by  the  Insurance  Commissioners  who  have  preceded  Mr.  Clunie, 
or  any  one  else? 

A.     No,  sir. 

Q.  And  they  have  been  issued  in  this  State  upon  the  belief 
on  the  part  of  the  Home  Life  Insurance  Company  that  they  did 
comply  with  the  laws  of  the  State? 

A.     Yes,  sir. 

MR.  RANKIN.  Mr.  Commissioner,  Mr.  Clarence  M.  Smith, 
of  the  Northwestern  Mutual  Life  Insurance  Company,  which 
Company  I  represent,  could  not  be  here  to-day,  because  he  is 
serving  on  a  jury  in  the  United  States  District  Court.  I  would 
like  to  reserve  the  right  to  ask  of  Mr.  Smith  the  same  questions 
that  have  been  asked  of  Colonel  Hawes  and  the  other  gentlemen 


55 


by  Mr.  McCutchen,  unless  you  will  concede  that  Mr.  Smitii  will 
testify  as  they  iiave  just  testified. 

■niK  CO^lMISsioNER.  I  think  what  these  gentlemen 
have  just  testified  to  is  the  fact. 

MR.  KANKIN.  So  far  as  Mr.  Smith  and  his  Company  are 
concerned,  they  are  acting  in  perfectly  good  faith. 

THE  COMMISSIONER.  I  suppose  you  can  have  Mr.  Smith 
here  at  any  time  you  desire.  His  answers  will  probably  be  the 
same  as  those  given  by  the  other  gentlemen. 

MR.  RHODES.     I  think  the  same  will  be  true  of  Mr.  Field. 

MR.  WHEP]LKR.  I  would  like  to  have  ths  same  concession 
ipade  with  reference  to  Mr.  North,  of  the  Provident  Savings  Life 
Assurance  Society,  of  New  York,  whom  I  represent. 

THE    COMMISSIONER.     Very  well. 

MR.  MADISON.  And  we  would  like  to  have  it  apply  also  to 
Mr.  Shields,  of  the  Equitable  Life  Assurance  Society. 

THE  COMMISSIONER.     Very  well. 

MR.  McCUTCHEN.  I  will  examine  Mr.  McLane  upon  the 
same  subject,  as  he  is  here,  if  the  Commissioner  please. 

THE  COMMISSIONER.      You  may  do  so. 


FURTHER   STATEMENT   OF   C.   A.   McLANE,  ESQ., 
Agency  Director  of  the  New  York  Life  Insurance  Company. 

MR.  JklcCUTCHEN.  Q.  Mr.  McLane,  you  have  heard  the 
answers  given  by  Colonel  Hawes,  in  which  he  has  given  his 
understanding  of  the  distinction  between  the  full  tontine,  the 
semi-tontine,  and  the  limited-tontine  policies.  Is  it  your  under- 
standing that  those  answers  are  correct? 

A.     Certainly. 

Q.  That  a  policy  providing  for  what  is  known  among  Insur- 
ance men  as  a  semi-tontine,  or  limited-tontine  insurance,  does 
provide  for  tontine  insurance? 

A.     As  a  tontine  principle,  yes,  sir. 

Q.     And  is  tontine  insurance? 

A.     Yes,  sir;  and  that  is  tontine  insurance. 


5(; 

ME.  McCUTCHEN.  I  presume  that  same  understanding 
may  be  had  with  reference  to  the  Germania  Insurance  Company, 
Mr.  Commissioner.  I  also  represent  that  Company  upon  this 
hearing. 

THE  COMMISSIONEE.  1  understa.nd  that  no  policies 
issued  by  any  of  the  Companies  in  this  State  have  been  ques- 
tioned, so  far  as  this  provision  of  the  Civil  Code  is  concerned, 
until  the  matter  arose  after  I  became  Commissioner.  In  other 
words,  the  question  has  never  arisen  before. 

ME.  EANKIN.  I  think  I  should  go  further  than  that.  I 
think  we  should  either  have  it  admitted,  or  have  it  shown,  that 
these  Companies  have  actually  endeavored  to  comply  with  the 
law.  You  have  on  file,  Mr.  Commissioner,  a  letter  from  the 
General  Attorney  of  the  Northwestern  Life  Insurance  Company, 
in  which  he  expressly  states  that. 

THE  COMMISSIONEE.  I  am  willing  that  you  should 
make  that  letter  part  of  your  statement  on  this  hearing,  if  you 
so  desire. 

ME.  KELLOGG.  I  do  not  understand  that  the  good  faith  of 
the  Companies  in  regard  to  the  issuance  of  policies  is  ques- 
tioned. 

THE  COMMISSIONEE.     I  never  questioned  it. 

ME.  KELLOGG.  If  the  Commissioner  does  not  raise  that 
question,  I  do  not  see  that  we  need  to  meet  it. 

ME.  McCUTCHEN.  I  understand  that  the  Commissioner 
gives  it  as  his  understanding  that  the  Companies  have  acted  in 
good  faith. 

THE  COMMISSIONEE.  I  so  imderstand  it.  The  question 
upon  the  policies  has  never  arisen,  to  my  knowledge.  Whether 
the  section  has  been  passed  over,  or  not  noticed,  I  do  not  know. 
I  do  not  think  the  past  Insurance  Commissioners  ever  noticed 
the  question  here.  Moreover,  I  understand  that  the  Companies 
generally  have  followed  the  law  of  the  State  whence  they  eame, 
considering  that  the  law  which  bound  them.  I  do  not  think 
they  have  ever  paid  any  particular  attention  to  the  California  law. 

ME.  EANKIN.  At  your  suggestion,  Mr.  Commissioner,  or 
permission,  I  will  here  incorporate  into  the  record  the  letter  of 
Charles  E.  Dyer,  Chief  Counsel  of  the  Northwestern  Company. 


5< 


LETTER  OF  CHARLES  E.  DYER,  ESQ., 

Counsel  of  the  Northwestern  Mutual  Life  Insurance  Company. 

Milwaukee,  Dec.  14,  1897. 
Hon.  A.  J.  Clunie,  Commissioner  of  Insurance.  San  Francisco, 

California — 

Dear  Sir:  We  are  advised  hy  Mr.  Clarence  M.  Smith,  this 
Company's  General  Agent  in  California,  located  in  San  Fran- 
cisco, that  a  question  has  arisen  with  you  whether  various  Life 
Insurance  Companies,  including  the  Northwestern  Mutual  Life 
Insurance  Company,  are  complying,  in  the  forms  of  policies  used 
in  your  State,  with  Section  450,  Volume  2,  of  Deering's  Anno- 
tated Codes  and  Statutes  of  California,  and  we  underetand  you 
desire  further  evidence  than  you  now  have  of  compliance  hy  the 
Company  I  represent,  with  the  provisions  of  that  section.  As  we 
may  agree  on  all  sides,  the  evident  ohject  and  purpose  of  the  law 
are  to  prevent  the  entire  forfeiture  of  rights  and  interests  in 
policy  contracts,  and  to  preserve  to  the  insured  such  protection 
against  unqualified  forfeiture  as  the  statute  affords,  notwith- 
standing the  fact  that  the  insured  may  cease,  at  a  certain  period 
in  the  history  of  his  policy,  to  pay  the  required  premium. 

It  is  certainly  the  intention  of  this  Company  to  secure  by  its 
policy  contracts  to  California  policy-holders  the  rights  which 
the  statute  confers,  and  we  can  have  no  doubt  that  an  inspection 
of  the  Company's  forms  of  contract  will  satisfy  your  mind  on 
that  point. 

Inferring  that  your  construction  of  Section  450  is  that  it 
applies  to  all  policy  contracts,  except  those  for  tontine  insurance, 
and  for  fixed  term  insurance,  and  for  insurance  fully  paid-up,  I 
call  your  attention  to  the  fact  that,  either  in  the  body  of  all 
forms  of  policies  used  by  this  Company  to  which  the  statute  can 
apply,  or  in  tlie  conditions  and  provisions  which  ai)ix^ir  on  the 
second  page  of  ilie  same,  and  are  made  a  part  of  the  contract, 
suitable  clauses  appear,  guaranteeing  to  the  insured  the  rights 
conferred  by  the  statute  of  your  State.  I  take  occasion  to  for- 
ward to  you,  through  the  Company's  General  Agont  in  San 
Francisco,  a  bundle  of  forms  of  all  policies  used  by  the  Company, 
so  that  you  may  be  able  to  inspect  the  same,  and,  as  I  shall  be- 
lieve, to  corroborate  my  statements  on  the  subject. 


58 


For  example,  in  the  ordinary  life  form,  our  provision  is  that, 
"  If,  after  three  or  more  annual  premiums  shall  have  been  paid 
in  cash,  default  shall  be  made  in  the  payment  of  any  premium 
on  the  day  it  shall  become  due,  this  contract  shall  secure  non- 
participating,  paid-up  insurance  for  such  sum  as  the  reserve 
upon  this  policy,  by  the  uow  existing  standard  of  the  State  of 
AViscoTifjin,  will  then  purchase  as  a  single  premium,  at  the  Com- 
pany's published  rates,  on  condition  that  this  policy  be  freed 
from  all  indebtedness  to  the  Company.  Or,  upon  payment  of  all 
indebtedness  to  the  Company,  Avith  written  application  of  the 
insured  and  beneficiary  and  assigns,  if  any,  and  the  due  sur- 
render of  this  policy,  and  all  claims  thereunder,  to  the  Company, 
at  its  Home  Office  in  Milwaukee,  Wisconsin,  within  three  months 
after  such  default  in  the  premium  payment,  the  Company  will 
apply  the  reserve,  by  the  standard  last  above-mentioned,  to  ex- 
tend and  continue  in  force  the  full  amount  of  this  policy,  as 
non-participating  term  insurance,  for  the  number  of  years  and 
days  indicated  by  the  table  on  this  page;  but,  if  the  insured  shall 
die  within  three  years  after  such  default  in  the  premium  pay- 
ment, and  within  the  term  of  the  said  extended  insurance,  the 
Company  will  deduct  from  the  amount  payable  all  premiums  that 
would  have  become  due  on  this  policy,  had  default  not  occurred,, 
with  interest  thereon  at  the  rate  of  six  per  cent  per  annum." 

Then  follow  tables  of  lo-an  and  cash  value  and  paid-up  and 
extended  insurance.  It  should  be  observed  that  the  existing 
standard  of  the  State  of  Wisconsin,  as  named  in  the  foregoing 
provisions,  is  the  American  Experience  Mortality,  and  interest 
at  four  and  one-half  per  cent  yearly. 

The  statute  of  California,  as  will  be  conceded,  does  not  obli- 
gate a  Company  issuing  policies  in  that  State  to  grant  both  non- 
participating  term  insurance  and  paid-up  insurance,  but  it  does 
require  that  one  or  the  other  sliall  be  granted.  I  notice  that  the 
statute  requires  what  m.ay  be  called  automatic  non-participating 
term  insurance,  or  paid-up  insurance,  provided  the  latter  be  ap- 
plied for  within  three  months  from  non-payment  of  premium. 
The  only  deviation  in  the  Company's  policy  form  to  which  I 
have  just  referred,  from  the  statute,  is  that  in  the  policy  con- 
tract the  paid-up  insurance  is  absolutely  secured  without  applica- 
tion therefor.     It  results  automatically  from  the  contract  itself. 


59 

while  the  non-participating  term  insurance  is  to  be  granted,  if 
applied  for.  But  I  take  it  this  is  an  unsubstantial  deviation,  if 
it  can  be  regarded  as  a  deviation  at  all.  All  the  substantial 
rights  conferred  by  the  statute  are  secured  by  the  policy.  The 
contract,  by  its  own  provisions,  is  preventive  of  a  forfeiture. 
Paid-up  insurance  is  secured  absolutely  after  three  or  more 
annual  premiums  have  been  paid  in  cash;  or,  if  the  insured  pre- 
fers and  applies  for  the  same,  he  is  to  have  non-participating 
term  insurance  for  the  number  of  years  and  days  indicated  by 
the  table,  such  application  being  made  within  three  months  after 
default  in  the  premium  payment. 

In  the  form  for  single-payment  life,  of  course  nothing  can 
possibly  be  required,  under  the  statute,  in  relation  to  either  term 
or  paid-up  insurance,  because  the  single  payment,  made  at  the 
time  the  policy  is  issued,  secures  the  full  amount  as  absolutely 
paid  up. 

In  the  life  form,  non-participating,  the  provision  is  that  if, 
after  three  or  more  annual  premiums  shall  have  been  paid  in 
cash,  default  shall  be  made  in  the  payment  of  any  premium  on 
the  day  it  shall  become  due,  the  contract  shall  secure  paid-up 
non-participating  insurance,  calculated  in  accordance  with  the 
table  then  used  by  the  Company  for  the  purpose,  on  condition 
that  the  policy  be  freed  from  all  indebtedness  to  the  Com])any, 
and  a  paid-up  policy  will  be  issued,  accordingly,  on  surrender  of 
the  policy. 

In  the  limited-payment  life  form,  the  provisions  on  the  sub- 
ject of  paid-up  and  term  insurance  are  as  in  the  ordinary  life. 

Of  course,  in  the  paid-up  life  forms,  whether  participating  or 
nourparticipating,  nothing  can  be  required  in  the  form  of  such 
conditions  as  are  named  in  your  statute,  because  they  are  already 
fully  paid-up.  Such  forms  are  denoted  as  "Life  P"  and  "X.  P. 
Life  P." 

The  endowment  forms,  except  in  full  paid-up,  contain  the 
same  provisions  on  the  subject  of  paid-up  and  term  insurance  as  I 
have  called  attention  to  in  connection  with  the  ordinary  lifo 
form. 

The  semi-tontine  also  secures  paid-up  insurance  absolutely. 
I  mean,  of  course,  such  as  are  not  single-payment  policies. 

The  foregoing  observations  are  also  applicable  to  the  Com- 


60 

penVs  forms  of  installment  policies,  whether  life,  endowment, 
or  semi-tontine. 

The  forms  which  I  send  for  your  examination  constitute  all 
that  are  issued  by  the  Comj^any,  except  that,  in  some  instances, 
of  course,  the  policies  run  to  designated  beneficiaries,  and  in 
some  cases  to  Executors,  Administrators,  or  assigns,  but  all  are 
uniform  with  reference  to  provisions  securing  protection  against 
forfeiture. 

T  shall  be  very  glad  to  be  advised  of  your  views  with  respect 
to  conformity  by  the  Company  with  the  statutory  requirements 
referred  to,  after  examination  of  the  fonns  of  policy  contracts 
which  I  send  for  your  inspection,  and  to  have  any  further  corre- 
spondence with  you  that  you  may  deem  necessary  upon  the  sub- 
ject, as  the  Company,  of  course,  is  desirous  of  fairly  meeting  all 
requirements  of  statutes. 

Very  respectfully, 

CHAS.   E.   DYEK, 

Counsel. 


MR.  VARKVAi.  Mr.  Commissioner,  on  behalf  of  the  Massa- 
chusetts Mutual  Life  Insurance  Company,  of  Springfield,  Massa- 
chusetts, I  have  a  letter  from  the  Secretary  of  the  Company  with 
reference  to  the  subject  under  investigation  which  I  would  like 
to  have  incorporated  as  part  of  the  record. 

TITE    COMMISSIOXER.     Very  well.     You  may  do  so. 

LETTER   OF  IT.   M.   PHILLIPS.,   ESQ., 

Secretary  of  Tlie  Massachusetts  Mutual  Life  Insurauee  Company. 

Springfield,  Mass.,  January  12,  1898. 
•C.  M.  T.  Parker,  Esq.,  Manager — 

Dear  Sir:  I  have  your  letter  of  the  Gth  inst.,  enclosing  a 
communication  received  by  you  from  the  Commissioner  of  In- 
surance of  California,  notifying  you  of  a  hearing  before  him 
commencing  Monday,  January  10th,  1898,  at  10  A.  M.,  for  the 
purpose  of  ascertaining  whether  the  various  Life  Insurance  Com- 
j>anies  doing  bui^iness  in  California  have  complied  with  Section 
450  of  the  Civil  Code,  and  I  note  your  request  that  we  should 
Avri'te  him  a  letter  on  the  subject.  We  have  very  littk"  fuiither  to 
say  than  has  already  been  given  you  im  my  letters  of  July  3rd  and 


61 

August  S.'Jrd,  1S07.  The  Company  claims,  of  course,  that  it  has 
always  complied  with  the  jtrovisions  of  the  section  of  the  Civil 
Code  referred  to,  and  that  in  all  its  contracts  it  specifically  pro- 
vides for  paid-u])  insurance  as  required  by  that  section.  This 
section  requires  that  all  life  policies,  "when  three  full  annual 
premiums  shall  have  been  paid/'  etc.,  a  provision  for  certain 
''non-participating  term  insurance,"  or  for  a  "non-participating 
paid-up  policy,"  etc.,  "both  kinds  of  insurance  to  be  subject  to 
the  same  conditions,  except  as  to  the  payment  of  premiums,  as 
those  of  the  original  policy,  unless  specifically  contracted  be- 
tween the  insurer  and  the  insured  for  tontine  insurance,"  or  for 
"other  term  or  other  paid-up  insurance."  "We  claim  that  our 
contract  specifically  provides  for  "other  paid-up  insurance,"  ami 
by  this  we  mean  other  than  is  particularly  described  in  the  sec- 
tion above  quoted.  If  the  Commissioner  claims  that  our  con- 
tract does  not  call  for  other  paid-up  insurance,  we  can  only  beg 
respectfully  to  differ  with  him.  because  we  feel  quite  confident 
that  our  contracts  do  so  provide.  On  its  first  page,  our  contract 
is  made  subject  to  the  provisions  and  requirements  stated  on  the 
back  thereof,  and  on  the  back  thereof  is  specifically  given  the 
paid-up  insurance  which  we  are  required  to  pay — not  only  by  the 
terms  of  the  contract,  but  by  the  laws  of  ^lassaehusetts,  under 
which  our  contracts  are  issued.  After  two  full  annual  premiums 
are  paid,  instead  of  three,  as  is  required  by  the  laws  of  California, 
without  any  action  on  the  part  of  the  insured,  the  policy  becomes 
binding  upon  the  Company  for  a  certain  paid-up  value,  and  this 
amount  is  written  in  each  policy,  subject,  of  course,  to  the  de- 
duction of  any  indebtedness  to  the  Company,  as  stated.  Refer- 
ence is  made  to  Section  70  of  the  Insurance  Laws  of  this  com- 
monwealth. 

T  do  not  know  that  we  can  make  our  claims  any  clearer,  but 
we  feel  quite  sure,  as  I  have  heretofore  said,  that  we  are  fully 
complying  with  the  requirements  of  the  California  statutes.  We 
have  not  written  Commissioner  Clunie  on  the  subject,  and  re- 
<iuest  that  you  communicate  to  him  the  substance  of  this  letter. 

Yours  very  truly. 

'll.    m'.   PHILLIPS,  Secretary. 


♦ 


62 

ME.  LANDERS.  I  would  like  to  make  a  further  statement, 
Mr.  Commissioner,  before  the  arguments  are  proceeded  with. 

THE  COMMISSIONER.  I  shall  be  glad  to  hear  further 
from  you,  Mr.  Landers. 

FURTHER    STATEMENT    OF    JOHN    LANDERS,  ESQ., 
General  Agent  of  The  Manhattan  Life  Insurance  Company. 

MR.  LANDERS.  With  reference  to  the  question  of  annual 
licenses,  the  law  provides  that  an  annual  license  shall  be  issued  to 
the  General  Agent  holding  the  power  of  attorney  of  a  Life  In- 
surance Compan)',  for  which  license  a  fee  of  $15  shall  be  exacted. 
In  addition  to  that,  the  law  provides  that  in  the  event  of  any 
shortage  or  deficiency  occurring  in  the  management  or  conduct 
of  the  office  of  the  Insurance  Commissioner,  that  shortage  ot 
deficiency  should  be  provided  for  by  a  ft^ax  upon  the  different 
Insurance  Companies,  prorated  according  to  the  amount  of  In- 
surance  premiums  received  by  the  several  Oompanies  repoTting 
to  the  Commissioner.  If  you  will  look  over  the  early  reports  of 
the  Insurance  Commissioner  of  the  State  of  California,  you  will 
find,  Mr.  Commissioner,  particularly  in  the  First  Annual  Report, 
that  there  was  quite  a  large  deficiency.  You  will  find  that  that 
deficiency  was  made  up  by  an  assessment  upon  the  various  Insur- 
ance Companies,  as  the  law  provided.  In  later  years  the  income 
of  the  Department  was  equal  to  its  expenditures,  and  there  was 
no  further  tax  upon  the  Companies  required.  The  Commis- 
sioners in  offi-ce  previous  to  your  Honor  took  into  consideration 
the  fact  that  the  Companies  contributing  to  the  maintenance  of 
the  Department  during  its  early  history,  Avhen  it  was  unable  to 
meet  the  office  expenses  without  the  co-operation  of  the  Insur- 
ance Companies,  had  given  that  assistance.  And  they  concluded 
that  the  annual  "License  Fees"  of  $15  should  be  rebated  and  that 
the  Agency  Certificates  should  continue  in  force  without  renewal, 
so  as  to  give  those  companies  a  chance  to  recoup  a  portion  of 
their  early  outlays.  By  reference  to  the  first  annual  report  of 
the  Insurance  Commissioner,  by  the  Hon.  George  W.  Mowe,  the 
Commissioner  will  find  the  receipt  from  the  Manhattan  Life 
Insurance  Company  of  $15  for  annual  license  fees;  and  in  addi- 
tion to  that,  you  will  also  find  the  payment  of  $143  and  some 
odd  cents  as  that  Company's  pro  rata  of  the  expenses  of  main- 


(i.'i 

tainincr  the  oflfice  of  Insurance  Commissioner.  I  rememhcr  at 
the  time  of  the  creation  of  the  Department  and  oflfice  of  Insur- 
ance Commissioner,  it  was  objected  to  on  the  ground  that  it 
miglit  become  a  source  of  expense  to  the  citizens  of  the  State  of 
Cah'fornia.  I  assisted  in  the  creation  of  the  Deparmnent  at  the 
time.  We  had  to  go  before  the  Legislature  in  order  to  (^^t  an 
Insurance  De])artment,  so  that  we  might  keep  out  unreHable 
Companies,  and  to  improve  the  condition  of  one  or  two  local 
Companies  at  that  time  in  existence,  notably  the  Builders'  Insur- 
ance Company,  which  some  of  oiii'  old  residents  may  recall, 
in  connection  with  Thomas  Mooney,  who  was  its  President,  and 
was  also  President  of  the  People's  Bank,  both  occupying  the 
same  oflfice,  down  on  California  street.  I  was  at  that  time  repre- 
seii'ting  several  New  York  Fire  Insurance  Companies,  as  well 
as  the  ]\fanhattan  Life  Insurance  Company.  Thomas  Mooney 
was  one  of  those  fellows  who  would  not  join  the  "Board  of 
Underwriters."  He  was  constantly  demoralizing  the  business  of 
the  fire  uiuhrwriters  of  this  community.  His  fire  company  was 
without  any  ])aid-up  capital  stock,  and,  in  fact,  without  any  pro- 
tection for  policy-holders,  as  far  as  the  citizens  of  California  were 
concerned.  So  the  reputable  Companies  combined,  went  to  the 
Legislature,  and  had  this  Department  created.  We  were  met 
with  the  proposition  that  the  Legislature  was  perfectly  willing 
to  create  the  Department,  providing  it  should  not  be  a  tax  upon 
the  funds  of  the  State.  To  meet  that  objection,  the  Insurance 
Companies  said  they  would  .<upport  the  office,  that  they 
would  pay  the  salary  of  the  Commissioner  a.nd  his  Deputy,  his 
oflfice  rent,  and  all  the  expenditures  of  the  office.  It  was  to  be 
made  up  by  a  pro  rata  assessment  on  the  part  of  the  several  In- 
surance Com])anies  subsequently  reporting  to  the  Insurance 
Commissioner  at  that  time.  This  was  undoubtedly  the  reason 
why  the  subsequent  Insurance  Commi.ssioners,  taking  into  con- 
sideration the  fact  that  Companies  had  been  previously  taxed  for 
the  maintenance  of  this  Department,  decided  that  they  would 
permit  the  licenses  of  those  Companies  to  remain  in  effect  as  they 
were,  except  when  a  change  in  the  attorneyship  of  a  company 
required  the  issuance  of  a  new  license  and  the  payment  of  the 
$15  fee.  That  is  prol>ably  the  reason  why  many  of  the  Com- 
panies are  to-day  acting  under  the  original  license  issued  from 
this  office — the  fact  that  we  had   contributed  assessments  to 


04 

maintain  the  office  and  to  provide  for  it.  The  Manhattan  Life 
Insurance  Company,  as  1  liave  heretofore  stated,  paid  $143, 
which  wonld  he  an  equivalent  of  paying  an  annual  license  fee 
for  almost  a  succeeding  ten  years,  and  its  non-collection  was 
sim])ly  a  uvaiten  of  reciprocity  between  the  Insurance  Commis- 
sioners and  the  Companies. 

ME.  THOMAS.  So  far  as  my  Companies  are  concerned,  Mr. 
Commissioner,  I  think  that,  while,  as  I  said  before,  we  do  not 
desire  to  raise  this  question,  we  rely  upon  the  fact  that  the 
statute  does  not  specially  provide  for  annual  renewals  of 
licenses  to  the  Companies. 

ME.  McALLISTEE.  In  relation  to  the  question  of  licenses, 
1  do  not  think  there  is  any  provision  in  tliis  statute  at  present 
which  requires  a  Life  Insurance  Company  to  pay  an  annual 
license. 

THE  COMMISSIONEE.  My  understanding  of  the  law,  in- 
dependent of  the  retaliatory  clause,  is,  that  the  Company  comes 
into  the  State,  and  a  certificate  of  authority  is  issued  from  this 
office  to  that  Company  to  transact  business  in  this  State,  and 
that  certificate  of  authority  is  supposed  to  last  until  the  Com- 
pany becomes  insolvent,  except  in  some  cases  where  there  is  a 
change  of  Agents,  and  theoi  a  new  certificate  is  issued.  The 
question  has  arisen  here  as  to  whether  or  not  the  Agent  requires 
a  license,  too,  my  contention  being  that  the  Agent  also  requires 
a  license,  and  Mr.  McAllister's  contention  being  that  he  does  not. 
His  discussion  of  the  matter,  however,  took  place  independent 
of  the  retaliatory  clause  of  the  law.  I  want  you  gentlemen  to 
address  yourselves  to  that  proposition. 

ME.  LANDEES.  For  the  benefit  of  the  gentlemen  represent- 
ing Companies  of  other  States  other  than  New  York,  which 
appears  to  he  pretty  well  represented  here  at  this  meeting,  I 
will  state  that  there  was  a  Conveuition  of  the  Insurance  Com- 
mis.sioners  of  the  various  States  held  some  twenty  odd  years  ago 
in  the  East.  This  Departrnen't  was  invited  to  be  present,  and 
I  am  under  the  impression  that  Mr.  Mowe,  the  Commissioner  at 
that  time,  was  in  attendance.  That  Convention  was  called  with 
a  view  of  bringing  about  a  uniroj-uiity  of  laws  in  the  different 
States  with  reference  to  Insurance.  J^rioi-  to  that  time,  each 
State  had  its  own  special  laws  with  referenee  to  the  "anaiual  staite- 
ments,"  each  State  had  its  own  S'tatement  blanks,  and  theTe  were 


i\: 


])r(ivi>i()iis  in  each  State  t!iat  were  aliiiurft  direetly  (Ji)posit^  in 
Jonn  to  the  others.  So  at  the  Home  Olfiee  of  a  Company  havini' 
Agencies  in  cliU'erent  States,  a  great  deal  of  labor  was  required  in 
preparing  the  different  annual  statements  for  outside  State  re- 
quirements, namely,  one  for  Wisconsin,  another  one  for  Massa- 
chusetts, another  one  for  California,  and  so  on  through  the  list 
of  the  several  State  Insurance  Departments.  That  Convention 
resulted  in  the  subsequent  reforming  of  Insurance  laws,  and  the 
same  blanks  were  made  applicable  to  most  if  not  all  of  the  States. 
The  laws,  at  the  request  of  the  Insurance  Commissioners  of  the 
\ariouK  States,  Mere  subsequently  adopted  to  meet  the  views  ex- 
j)i-essed  by  the  Commissioners  present  at  these  Conventions.  So, 
when  you  oonie  right  down  to  it,  and  study  the  laws  of  the  differ- 
ent Staites,  you  will  hiid  that  they  are  intended  to  be  in  har- 
Uiony,  iiiul  are  practieaJly  imiform,  all  of  which  was  brought 
about  through  these  annual  Convemtions  of  Insurance  Commis- 
sioners. 

MR.  RAXKIN.  Several  of  the  States,  as  1  understand,  have 
their  special  requirements  with  regard  to  the  deposit  of  certain 
sums  of  money,  according  to  the  amount  of  insurance  carried. 

MR.  LANDERS.  That  is  only  in  reference  to  deposits.  For 
example,  we  have  no  Life  Insurance  Company  from  England 
doing  business  in  this  country.  Why  is  that?  It  is  because 
English  Life  Insurance  Companies  will  not  comply  with  our 
laws,  and  segregate  their  various  policies,  and  set  aside  a  reserve 
to  be  improved  upon  at  a  certain  rate  of  interest  for  the  protec- 
tion of  their  policy-holders.  Nor  do  they  value  their  policies  in 
nnmerical  order,  but  they  value  them  in  groups.  And  there  is 
no  system  of  bookkeeping  with  English  Companies  that  would 
enable  them  to  come  into  our  country,  where  there  are  Insm-ance 
laws,  and  facilitate  their  making  an  annual  statement  such  as  is 
required  from  our  American  Companies.  That  is  the  reason 
why  English  and  other  foreign  companies  are  not  doing  business 
in  this  country.  That  will  also  apply,  in  many  cases,  to  foreign 
Fire  Insurance  Companies.  The  English  Fire  Insurance  Com- 
panies find  it  easier  to  incorporate  a  branch  office  under  the  laws 
of  the  State  of  New  York,  deposit  $200,000  in  bonds  or  other 
securities  in  the  hands  of  American  Trustees  for  their  American 
policy-holders,  keeping  all  their  American  business  and  their 
American  assets  separate  for  the  security  of  the  American  policy- 


66 

holders,  and  also  separate  from  their  English  management  and 
control.  This  course  is  almost  universally  adopted  by  the  Eng- 
lish Fire  Insurance  Companies  doing  business  in  this  country. 
They  simply  send  over,  say  $200,000  of  good,  sound,  reliable 
assets,  acceptable  to  the  Insurance  Commissioner  of  New  York, 
and  then  appoint  a  local  Board  of  Trustees  in  New  York,  who 
act  and  keep  everything  separate  and  distinct  from  the  Home 
Office  and  for  the  exclusive  benefit  of  its  American  patrons. 

THE  COMMISSIONEE.  Is  there  anything  further  to  be 
said  by  any  of  the  Insurance  gentlemen  present  before  the  testi- 
mony is  closed?  If  not,  as  I  understand  it,  we  may  now  proceed 
with  the  argument.  I  understand  that  the  Managers  have 
already  presented  all  the  testimony  they  desire  to  present.  I 
trust  I  shall  hear  from  all  of  the  Attorneys  present.  Or,  if  you 
prefer  it,  one  or  two  can  make  the  argument  for  all. 

ME.  ilcCUTCHEN.  As  far  as  I  am  concerned,  the  argument 
has  practically  been  made. 

MK.  THOMAS.  I  do  not  mind  going  on  at  the  present  time, 
if  it  is  desired. 

THE  CO]\IMISSIONEE.  I  will  state,  further,  that  I  would 
like  to  have  the  fullest  possible  view  of  the  law  from  you  all,  if 
you  have  anything  to  say.  This  is  a  very  inte'restimg  matter,  and 
one  of  a  great  deal  of  moment,  as  I  realize.  I  should  not  like  to 
make  a  mistake  on  the  law  of  this  matter. 


AEGUMENT   OF   WILLIAM   THOMAS,  ESQ., 

Attorney  for  the  Mutual  Life  Insurance  Company,  of  New  York, 

and  the  Connecticut  Mutual  Life  Insurance  Company. 

ME.  THOMAS.  Mr.  Commissioner:  The  Mutual  Life  Insur- 
ance Company,  of  New  York,  and  the  Connecticut  Mutual  Life  In- 
surance Company  practically  rest  their  position  upon  the  ground 
taken  by  Mr.  Donnels  in  the  brief  read  to  your  Honor  this  morn- 
ing: that  if  any  Insurance  Company  has  entered  into  a  specific 
contract  with  the  insured  for  either  tontine  insurance,  or  for  an 
original  policy  of  term  insurance,  or  any  policy  of  insurance  is 
issued  which  provides  for  paid-up  insurance,  which,  under  the 
testimony  here,  is  never  an  original  contract.  Section  450  of  the 


07 


Civil  Code  of  California  has  no  application  whaitever  to  that 
contract. 

The  questions  for  you,  as  Insurance  Commissioner,  to  deter- 
mine, are  these:  Is  the  policy  a  policy  of  tontine  insurance? 
If  so,  it  falls  within  the  exception,  and  the  statute  of  California, 
]n  providing  a  certain  stipulation  for  insurance  not  within  that 
exception,  does  not  touch  it.  Is  it  a  contract  for  original  term 
insurance?  If  it  is,  then  the  statute,  or  the  stipulation  provided 
for  therein,  does  not  touch  it.  Is  it  a  contract  which  provides 
for  paid-up  insurance  as  the  sequel  or  substitute  of  the  original 
contract  that  was  issued?  If  so,  the  statute  and  the  stipulation 
provided  for  therein  do  not  touch  it  at  all. 

So  far  as  the  Mutual  Life  and  the  Connecticut  Mutual  are 
concerned,  tliey  issue  no  policies  of  tontine  insurance  at  all. 
And  so  far  as  this  statute  is  concerned,  they  have  but  three  form? 
of  policy.  They  have,  first,  a  term  policy,  a  definition  of  which 
has  been  given  to  you.  The  term  policy  absolutely  expires  upon 
a  certain  day;  if  the  insured  is  alive,  his  rights  under  the  policy 
terminate  upon  that  day.  They  have  also  a  single-premium 
policy;  that  is  to  ?»ay,  a  policy  issued  upon  payment  of  a  single 
premium,  where  no  further  payments  are  necessary  at  all.  Every 
other  policy  ever  issued  by  the  Mutual  Life  or  the  Connecticut 
Mutual  in  this  State  has  in  it  an  express  provision  and  contract 
for  paid-up  insurance.  There  is  no  exception  whatever  to  that. 
And  as  the  contracts  are  either  term  or  single-premium  insur- 
ance, to  which  this  statute  can  have  no  application  whatever,  or 
are  policies  in  each  one  of  which  there  is  a  clause  providing  for 
paid-up  insurance,  every  policy  issued  by  these  two  companies 
falls  within  the  exception,  the  permission  given  to  the  insured 
and  the  insurer,  by  the  very  terms  of  this  statute,  and  we  are  not 
obliged  to  insert  in  these  contracts,  or  any  of  them,  a  stipulation 
which  the  statute  says  must  be  inserted  unless  there  be  such 
specific  contract. 

But  wc  go  further,  Mr.  Commissioner.  I  think  that  all  the 
Xew  York  Companies  comply  with  the  letter  of  the  statute,  and 
that  thev  do  not  fall  within  the  exception  at  all.  I  say  that 
every  one  of  the  New  York  Companies  that  ever  issued  policies 
under  the  law  of  the  State  of  New  Y^ork  which  went  into  efTecr 
on  the  first  day  of  January,  1880,  have  complied  with  the  express 
terms  of  this  statute. 


08 

THE  CO^iLMISSIONEE.  Will  you  read  that  law,  Mr. 
Thomas? 

MI,'.  THOMAS.  I  will.  J  want  to  call  your  Honor's  atten- 
tio2"i  to  one  thing:  I  do  not  think  the  stipulation  provided  for  in 
Section  450  in  the  Civil  Code  of  California  means  that  the  Com- 
pany ha?  got  to  issue  three  kinds  of  insurance,  but  only  two. 
Another  thing:  It  is  not  right  to  say  that  we  shall  first  give 
them  some  kind  of  a  policy  payable  in  ten,  fifteen  or  twentv 
years,  or  having  annual  premiums  payable  every  year  until  the 
assured  dies,  and  that  as  a  substitute  for  that,  after  three  annual 
premiums  shall  have  been  paid,  the  insured  shall  have  auto- 
matic tei-m  insurance  and  ilien  also  have  paid-up  insurance. 
The  language  of  this  statute  provides  that  the  alternative,  other 
than  the  original  cuutract,  shall  be  either  term  insurance  or 
paid-up  insurance.  It  does  not  provide  for  both.  And  if  we 
can  show  to  your  Honor  that  we  have  an  original  form  of  policy, 
of  any  sort  or  kind,  to  which  form  of  policy  we  have,  as  a  supple- 
ment, either  automatic  term  or  paid-up  insurance  upon  surrender 
and  demand  within  three  months,  I  say  we  have  strictly  coinplied 
with  the  leiu-r  of  this  statute,  and  we  do  not  fall  within  the 
exception.  The  Xew  York  law  gives  to  policy-holders  six 
months  within  which  to  surrender  and  make  demand,  while  the 
California  law  makes  the  term  three  months.  Therefore  the 
State  of  California  cannot  complain  in  that  regard. 

Let  me  take  out  of  Section  450  of  the  Civil  Code  exactly  what 
every  New  York  Company  doing  business  in  this  State  has. 
Every  policy  issued  by  them,  except  tontine  or  an  original  term 
P'.  -icy,  has  a  stipulation  in  it  which  I  will  take  right  out  of  tills 
section  and  make  it  perfectly  consistent.  It  contains  a  stipula- 
tion: "that  when,  after  three  full  annual  premiums  shall  have 
been  paid  on  such  policy,  it  shall  cease  or  become  void  solely  by 
the  non-payment  of  any  premium  when  due,  its  entire  net  re- 
serve, by  the  American  P]xperienee  Mortality,  and  interest  at  four 
and  one-half  per  cent  yearly,  less  any  indebtedness  to  the  Com- 
pany on  snch  policy,  shall  be  applied  by  such  Companv  as  a 
single  premium,  at  such  Company's  published  rates  in  force  at 
the  date  of  original  policy,  but  at  the  age  of  the  insured  at  time 
of  lapse,  to  the  purchase  of  a  non-participating  paid-up  policy, 
npon  the  written  application  by  the  owner  of  such  policy,  ^nd 
the  surrender  thereof  to  such  Company  within  three  months." 


69 

Then,'  ha^  not  a  >iiigle  New  Yurk  policy  bii-n  i.<.<iiLt|.  Mr.  C'om- 
missioner,  since  the  Isl  of  January,  18H0,  which  ha^  not  tluU 
clause  in  it. 

TllK  COMMISSION KK.  T^/et  me  see  if  I  understand  you. 
Suppose  a  policy  had  \>een  issued,  and  that  this  stipulation 
ought  to  be  in  it.  Do  1  understand  it  to  be  your  contention,  if 
there  was  a  forfeiture  after  three  years,  that  without  any  action 
on  the  part  of  the  insured  whatever,  your  company  on  its  books 
woidd  credit  the  reserve  in  ]>ayment  of  the  premiums  on  tli>i 
oripnal  amount  insured  and  carry  it  along? 

MK.  THOMAS.  No;  there  never  has  been  any  automatic  in- 
Burance  provided  for  by  the  policies  of  the  New  York  Companies. 

THE  COMMISSIONER.  Are  you  in  that  position  also,  Mr. 
McCu  tcheai  ? 

MI{.  McCUTCHEN.  Prior  to  1892  we  were,  but  now  we  are 
n-^t.  Our  policies  do  provide  for  automatic  insurance  without 
anv  action  on  the  part  of  the  insured. 

THE   COMMISSIONER.     Paid-up  or  extension? 

MK.  McCUTCHEN.     Ivxtension. 

MH.  THOMAS.  The  reason  I  read  the  words  which  I  did 
and  omitted  the  others,  was,  that  this  statute  does  not  provide 
for  automatic  paid-up  insurance,  and  it  does  not  provide  that  we 
shall  give  the  insured  both  of  the  forms  there  mentioned  after 
forfeiture. 

THE  COM.AIJSSIONEK.  I  do  not  want  to  interrupt  you, 
but  as  at  present  advised,  my  idea  is  that  that  statute  contemp- 
lates that  there  shall  be  either  one  or  the  other  given;  if  there  is 
no  action  on  the  part  of  the  insured,  you  must  give  him  auto- 
matic extended  insurance.  If  he  wants  to  take  advantage  of  the 
other  provision,  he  can  go  and  take  advantage  of  it  within  three 
months. 

MR.  MUNSELL.  With  reference  to  what  is  intended  there, 
I  could  say  a  word,  perhaps,  which  would  enlighten  the  Commis- 
sioner. 

THE  COMMISSIONER.  We  have  now  done  with  the  tesH- 
mony.  I  invited  the  Managers  of  the  various  Insurance  Com- 
panies to  come  here,  and  I  have  heard  from  them.  It  is  not 
necessary  for  them  to  stay  any  longer,  unless  they  are  so  inclined, 
as  I  now  desire  to  hear  the  law  of  the  case  presented. 


70 

MR.  THOMAS.  1  call  your  attention,  Mr.  Commissioner,  to 
this  fact:  thai  the  law  does  not  incorporate  into  every  policy, 
without  any  language  to  that  effect,  a  provision  for  automatic 
term  extension.  The  law  says  that  every  policy  shall  contain 
a  stipulation  foT  automatic  term  insurance;  that  if  it  does  not, 
it  shall  contain  a  provision  for  paid-up  insurance,  but  that  must 
be  ujon  the  demand  of  the  insured.  Under  the  provisions  of 
t'hat  stipulation  as  sent  forth  in  this  statute,  the  companies  have 
the  choice,  and,  provided  they  comply  with  either  of  the  alterna- 
tives, they  comply  with  the  statute,  because  the  statute  does  not 
say  that  the  insured  shall  have  both  alternatives. 

•  T]1P]   COMMISSIOXER.     But  does  not  the  statute  say  that 
they  shall  both  be  in  the  policy? 

MR.  THO.ArAS.  Not  at  all.  Jt  says  that  a  policy  must  con- 
tain a  stipulation  that  upon  a  certain  state  of  facts  happening, 
namely,  the  payment  of  three  annual  premiums,  the  policy 
must  be  carried  to  the  credit  of  the  insured  as  a  single  premium 
polic}',  to  Iniy  either  one  of  the  two  kinds  of  insurance,  namely, 
automatic  term  without  any  demand  on  the  part  of  the  insured, 
oi-  paid-up  insurance,  the  other  class,  but  that  the  latter  must  be 
preceded  by  the  demand  of  the  insured  for  it. 

THE  COMMISSIONEE.  Does  it  not  require  that  the 
language  of  the  statute  shall  be  in  the  policy  itself? 

MR.  THOMAS.  Where  a  statute  provides  that  a  certain 
alternative  proposition  must  be  carried  through,  there  is  no 
possi])le  construction  that  will  compel  a  man  to  put  into  a  policy 
both  of  the  alternatives,  where  it  would  give  the  insured,  as  in 
this  case,  three  classes  of  insurance.  Suppose  we  have  a  policy  of 
that  sort,  the  premium  upon  which  is  payable  in  ten  annual  pay- 
ments, the  policy  payable  at  death.  According  to  your  con- 
struction, Mr.  Commissioner,  that  man  has  three  classes  of  insur- 
ance given  him.  After  the  first  three  annual  premiums  have 
been  paid,  he  at  once,  ipso  facto,  gets  extended  term  insurance; 
that  is,  one  of  those  that  immediately  expires  at  the  end  of  the 
time  specified.  According  to  your  construction,  with  that  kind 
of  a  policy,  this  man,  without  any  demand  at  all,  is  covered  by 
this  extension  insurance.  And  for  the  next  three  months  after 
the  period  of  forfeiture,  the  Company  does  not  understand  upon 
what  ground  it  is  standing. 


Tin:  C0.MM1.S,SJ0^'EI^  Do  not  misunderstand  me.  The 
langiiiigc  lieie  is  "unless  specifically  contracted  between  the  in- 
surer and  the  insured  for  tontine  insurance,  or  for  other  term  or 
paid-up  insurance."  I  understand  those  words  to  apply  to  the 
original  policy  issued.  If  the  original  jiolicy  issued  belongs  to 
either  one  of  those  classes,  then  I  understand  there  is  nothing 
necessary  in  the  policy  under  this  section  of  the  Code  at  all.  But 
assume,  now,  the  case  of  an  ordinary  policy  issued  on  my  life  for 
$10,000.  1  go  to  your  ollice  and  1  say  to  you  that  I  want  to 
lake  out  an  ordinary  life  policy  for  $10,000.  You  say  it  is  so 
much  a  year.  Now  that  policy  must  contain  this  stipulation, 
and  the  stipulation,  as  I  understand  it,  must  be  in  the  wording  of 
this  statute,  or  its  equivalent. 

MR.  THOMAS.     But  you  are  asking  for  two  stipulations. 

THE  COMIillSSIONER.  I  understand  it  to  be  in  the  dis- 
junctive; it  seems  to  me  that  the  insured  has  the  option,  from 
the  language  here.  I  cannot  say  that  that  is  the  case.  That  is 
the  point  upon  which  I  want  to  hear  from  you.  I  think  the  law- 
intended,  from  my  present  view  (though  of  course  I  may  have 
occasion  to  modify  it),  that  the  insured  should  have  something 
anyway,  in  the  case  of  a  forfeiture  after  three  years,  upon 
policies  outside  of  the  exception  here  noted,  whether  he  acted 
at  all,  or  not.  And  it  would  seem  to  me  that  in  case  he  docs  not 
act  and  does  not  demand  a  paid-up  policy,  the  Company  issuing 
the  policy  must,  on  its  books,  automatically  carry  that  policy 
until  the  reserve  is  consumed  in  the  payment  of  premiums. 

iMl{.  THOMAS.  Provided  he  take^  that  kind  of  a  contract 
and  makes  no  demand  at  all.  But  where  the  statute  gives  us  the 
alternative  of  either  giving  him  paid-up  insurance  upon  demand 
wiihin  three  months,  or  this  extended-term  insurance,  and  we 
give  him  one  of  those  options  by  contract,  we  are  not  obliged  to 
give  him  both.  Why,  if  your  interpretation  is  correct,  if  I  had 
a  policy  upon  which  I  had  paid  premiums  for  three  years,  and  I 
lapsed  in  the  payment  of  premium,  I  could  take  advantage  of 
that  alternative  proposition  by  waiting  until  three  months  had 
nearly  expired,  and  then  force  the  Company  to  give  me  paid-up 
insurance.  In  the  meantime  I  would  have  been  covered  by  this 
automatic  extension. 

THE  COMMISSIONER.  I  had  not  thought  about  it  in  that 
way  before. 


72 

Mil.  THOMAS.  1  think  if  your  Honor  will  take  the  strict 
disjunctive  meaning  of  this  sentence,  you  will  agree  with  me  in 
my  interpretation. 

In  looking  at  this  Section  450  of  the  Civil  Code  again,  Mr. 
Commissioner,  I  wish  you  would  look  at  it  with  the  idea,  please, 
that  a  perfect  form  of  policy  can  be  gotten  up  containing  one  of 
these  alternatives  specified  in  the  statute,  namely,  paid-up  insur- 
ance, iind  leave  out  altogether  automatic  insurance. 

THE  COMMISSIONEK.  In  other  words,  if  the  policy  issued 
by  your  Company,  or  by  any  one  of  these  Companies,  contains 
either  the  agreement  to  give  automatic  insurance  or  the  agree- 
ment to  give  paid-up  insurance,  you  hold  that  that  is  a  sufficient 
compliance  with  the  law? 

ME.  THOMAS.     Yes,  sir. 

THE  COMMISSIONER.  I  would  like  to  hear  from  you  on 
that,  because  at  present  my  mind  is  not  inclined  in  that  direction. 

ME.  THOMAS.  I  can  only  refer  you  to  the  ordinary  con- 
struction which  should  be  given  to  every  alternative  statute.  If 
you  would  like  some  authorities  upon  that  point,  T  will  gladly 
furnish  you  with  them. 

THE  COMMISS.IONEE.  The  trouble  is,  I  do  not  under- 
stand this  to  be  an  alternative  statute.  I  do  not  understand  that 
there  is  any  alternative  as  to  what  shall  go  into  the  policy.  It  is 
ray  under stiinding  that  the  alternative  comes  in  after  the  policy 
is  written,  and  that  it  is  an  option  with  the  policy-holder.  I 
think  that  both  of  these  provisions  go  to  make  up  the  stipulation 
which  is  to  be  inserted  in  the  policy,  and  that  the  alternative  does 
not  come  in  until  after  the  forfeiture  has  taken  place. 

ME.  THOMAS.  If  your  Honor  will  take  a  good  look  at  that, 
I  think  you  will  see  how  inconsistent  it  would  be.  According  to 
your  view,  we  must  have  in  our  policy  a  clause  stating  that  after 
the  forfeiture  we  will  provide  for  the  insured  two  classes  of  insur- 
ance. You  say  no  policy  is  good  unless  it  provides  upon  its  face 
that  after  the  payment  of  three  annual  premiums  the  insured  is 
thereupon  at  once  entitled  to  two  more  classes  of  insurance,  upon 
forfeiture.  You  superpose  upon  term  insurance,  upon  a  policy 
which  admittedly  terminates  upon  forfeiture,  the  right  in  the 
insured  to  take  further  insurance,  which  is  entirely  inconsistent 
with  insurance  principles,  especially  in  view  of  the  other  alterna- 
tive. 


73 

THE   CO.MMISSIONEK.     Term  insurance  is  cxchukd  liere. 

MR.  THOMAS.  Original  term  insurance,  yes.  But  thie 
says,  "to  the  purchase  of  non-participating  term  insurance  for 
the  full  amount  insured  by  such  policy."  You  say  we  have  to 
have  lliat  in  the  policy,  and  that  in  s|)ite  of  having  that  we 
must  also  give  the  policy-holder,  upon  his  demand,  a  paid-up 
policy. 

THE  COMMISSIOXEIJ.  Thai  is.  the  policy-holder  has  the 
option. 

MR.  THO.MAS.     Hut  he  has  both. 

THE  C'OMMJSSJOXER.  Xo.  He  has  the  option  to  select 
one  or  the  other. 

MR.  THOMAS.  Why  has  he  not  both  during  that  three 
months?  It  seems  plain  to  me  that  he  has  both  classes  of  insur- 
ance during  that  period,  if  your  construction  be  correct. 

THE   COMMISSIONER.     There  mav  be  something  in  that. 

MR.  THOMAS.  That  is  the  reason  we  endeavored  to  get  the 
definition  of  term  insurance  so  clearly  before  your  Honor.  Term 
insurance  is  something  that  has  no  hereafter  at  all.  The  statute 
of  no  State  ever  contemplated  that  where  a  man  had  original 
term  insurance,  there  should  bo  any  rights  flowing  from  it,  and 
that  after  a  time,  by  virtue  of  the  payments  made  under  the  con- 
tract for  such  term  insurance  he  should  be  entitled  to  further 
rerm  in.-iura.nc-e,  because,  when  you  ap])ly  the  net  reserve  to  the 
purchase  of  non-participating  term  insurance,  it  is  based  upon 
the  original  contract  of  term  insurance,  and  the  premiums  upon 
that  class  of  insurance  are  very  small,  and  the  intention  is  that 
upon  the  expiration  of  that  time,  the  insurance  expires  entirely. 
Yet,  in  spite  of  that,  your  construction  of  the  statute  must  give 
the  insured  additional  insurance.  And  he  can  go  to  the  Com- 
pany again  at  the  end  of  three  months  and  say,  "I  will  change 
this  again.  I  have  had  extended  term  insurance,  and  now  1  will 
let  that  go  and  take  jiaid-up  insurance.''  What  is  going  to  hap- 
pen if  the  man  happens  to  die  during  the  throe  months?  He 
wild  get  the  extended  insurance.  And  yet  that  is  a  class  of  in- 
su'rance  that,  if  he  lived  beyond  that  space,  which  would  be  only 
three  months,  or  something  like  that,  suppose  the  term  insur- 
ance did  not  extend  over  the  three  months — 1  know  there  is  no 
such  exact  case  possible  after  the  payment  of  three  annual  pre- 
miums, but    suppose    it    allowed    tlu'    insured    loss    than    three 


74 

montlis  of  extended  insurance,  the  term  would  then  expire  and 
still  he  would  have  a  right  to  go  to  the  Company,  after  his  term 
insurance,  and  get  a  paid-up  policy. 

It  seems  to  me,  Mr.  Commissioner,  that  your  error  in  con- 
struing this  section  of  the  Code  is  due  to  the  fact  that  you  do 
not  give  the  disjunctive  construction  to  this  clause,  but  you 
would  compel  the  Company  to  put  in  both  alternatives,  and  then 
give  to  the  insured  the  option.  That  is  not  a  proper  construc- 
tion of  the  statute,  it  seems  to  me.  This  section  treats  of  the 
obligation  of  the  Company,  and  it  is  a  disjunctive  one  in  its  ap- 
plication. The  Company  has  to  do  either  one  of  the  two  things, 
give  automatic  extended  term  insurance,  or,  upon  demand  of  the 
insurec!,  give  paid-up  insurance. 

THE  CO]Vrj\ITSSIOXER.  On  the  other  hand,  your  idea  is 
that,  if  the  policy  provided  for  extended  term  insurance,  the 
insured  would  not  he  entitled  to  come  in  and  demand  a  paid-up 
policy  at  all? 

MI?.  THO^IAS.  Precisely.  All  these  policies  give,  on  de- 
mand, paid-up  insurance  (and  I  think  you  will  iind  very  few  of 
them  give  the  extended  term),  and  every  Insurance  Agent  will 
tell  you  that  paid-up  insurance  is  a  great  deal  better  for  the  in- 
sured than  extended  term  insurance.     Am  I  correct? 

MR.  HA  WES.     There  is  no  doubt  about  it. 

MR.  KELI.,OGG.  Xo  policy  giving  extended  term  insurance 
is  issued. 

MR.  THO:\IAS.  It  is  a  great  deal  better  for  the  insured. 
There  is  nothing  wo  would  like  better  tliiiti  a  ruling  from  this 
office  that  we  should  not  issue  a  policy  for  paid-up  insurance 
upon  forfeiture,  hut  that  we  all  had  to  give  extended  term  insur- 
ance. We  would  make  a  fortune  out  of  it.  The  first  alternative 
that  the  insured  has  upon  non-payment  after  three  annual  pre- 
miums have  been  paid,  is  a  class  of  insurance  that  has  no  here- 
after at  all.  There  never  was  any  legislalion  that  gave  anything 
after  the  expiration  of  the  terin,  in  the  wliolc  history  of  Insur- 
ance. It  is  for  that  reason  that  the  intention  of  the  Legislature, 
as  expressed  here,  must  have  been  that  the  covenant  of  the  Insur- 
ance Company  .should  be  alternative;  that  ilic  insured  should,  he 
either  given  automatic  extended  term  insurance,  or,  upon  de- 
mand, paid-up  insurance. 


(O 


Judifc  Kliodes  sufjgests  to  me,  and  I  think  his  .sufrgestion  h.is 
a  great  deal  of  force,  that  it  is  not  possible  that  the  Legislature 
of  this  State  could  have  provided  for  a  form  of  policy  that  no 
Company  would  ever  issue.  There  is  not  a  person  anywhere  in 
the  world  who  can  to-day  go  to  any  decent  Insurance  Company 
and  get  a  jjolioy  of  insurance  containing  three  forms  of  insur- 
ance, OT"  providing  for  three  forms  of  insurance:  original  insur- 
ance, extended  term  insurance,  and,  after  the  textended  terni 
insurance  and  during  this  period  of  three  months,  or  six  months, 
paid-up  insurance.  Is  that  a  correct  statement  of  your  sugges- 
tion, Judge  Ehodes? 

MR.  RHODES.  It  is  correct,  with  a  little  dilTerence.  It  w:Ti 
rever  contemplated  by  the  Legislature  in  passing  this  Act,  as  I 
contend,  that  the  insured  should,  after  the  lapse  in  the  payment 
of  premiums,  three  annual  premiums  having  been  paid,  have  a 
different  kind  of  insurance  than  the  Company  itself  could  have 
originally  is^-iued  t(t  him.  I  undertake  to  say  that  no  Company 
ever  did  issue  a  policy  of  insurance  containing  both  of  the  alteni- 
ativcs  upon  which  you  now  seem  to  insist,  Mr.  Commissione'r. 

THE  COMMISSIONER.  The  alternative  of  extended  insur- 
ance would  be  just  exactly  what  you  had  originally  contracted 
for, 

MR.  THOJIAS.  If  after  paying  the  annual  premium  for 
three  years,  I  fail  to  pay  the  premium,  the  Legislature  simply 
says,  "We  will  take  the  reserve  on  the  policy,  and,  without  any 
action,  having  that  understanding,  we  will  carry  the  policy  ^e 
long  as  the  reserve  will  ]ierniit  it.''  In  other  words,  as  long  hp 
the  reserve  will  pay  the  premiums,  the  policy  will  be  carried.  Of 
course,  whether  it  is  better  for  the  Company  or  the  insured,. det- 
pends  on  when  lie  dies.  If  he  dies  before  the  end  of  the  exte??- 
sion  term,  of  course  it  is  better  for  him  to  have  it  extended.  If 
he  dies  afterwards,  the  paid-up  insurance  is  better. 

MR.  WH  EELER.  Where  has  the  insured  given  any  value  iqv 
the  extended  term  insurance  when  he  takes  out  ptdd-un  in-ni- 
ancer 

M]{.  THOMAS.  He  has  not  paid  anything  for  the  extended 
teiTO  insurance. 

MR.  WPIEELER.  When  the  forfeiture  takes  place,  for  the 
next  six  months  the  insured  is  getting  term  insurance  without 
consideration.  : 


70 

]\IH.  THOMAS.  It  is  six  months  in  New  York,  but  only 
thiee  in  Calif oraia.  The  Legislature  of  the  State  of  California 
is  merely  saying  to  the  people  of  the  State  that  if  they  do  any- 
thing with  Insurance  Companies,  after  three  annual  premiums 
Are  paid,  if  they  then  lapse,  they  have  a  credit  of  three  months, 
and  if  yon  die  within  that  time,  you  will  get  the  face  of  your 
policy. 

M\<.  WHEELEE.  It  is  saying,  "You  will  have  three  months' 
insurance  for  nothing,"  estimated  upon  a  basis  which  has  never 
entered  into  the  calculations  of  Life  Insurance  Companies. 

THE  C0]\IMI8SI0NEE.  That  is  not  true,  because  the  re- 
serve is  always  sufficient  to  pay  the  premium  during  that  time. 

MR.  WHEELEE.  But  the  reserve  pays  for  the  paid-up  in- 
surance. 

THE  COMMISSIONEE.  And  it  pays  your  premium  in  the 
meantime. 

]\1H.  WHEELEE.  But  the  trouble  is,  it  buys  the  paid-up 
policy  for  a  certain  fixed  time. 

ME.  THOMAS.  According  to  your  construction,  Mr.  Com- 
missioner, if  you  put  both  forms  into  the  policy,  you  get  your 
extended  term  insurance  for  nothing. 

ME.  WHEELEE.  The  point  is,  of  course,  that  that  is  an 
argument  strongly  in  favor  of  Mr.  Thomas's  construction  of  the 
statute. 

]\1E.  THOMAS.  It  seems  to  me  plain  that  the  Legislature 
Jiever  meant  to  give  to  the  insured  both  alternatives,  when  there 
is  only  one  amount  to  pay  for  both  things,  namely,  the  reserve, 
which  is  just  enough  to  pay  for  one.  If  both  provisions  are  in 
the  policy,  the  insured  gambles  upon  it,  and  says  to  himself  that 
he  will  get  his  insurance  anyway,  and  so  he  waits  until  the  end 
of  the  three  months,  in  the  meantime  having  been  insured  by 
automatic  extended  term  insurance,  and  at  the  end  of  that  time 
he  gets  his  paid-up  policy.  And  he  does  not  pay  a  cent  for  the 
extended  term  in.«urance,  because  the  net  reserve  is  a  fixed 
amount,  and  at  the  end  of  the  three  months  he  demands  a  paid- 
up  j.'iilicy  for  the  amount  which  that  reserve  will  purchase.  I 
aflirni  again  that  it  couikl  lud  have  been  the  intention  of  l:he 
Legir^lature  that  Insurance  Companies  should  have  insurance 
outstanding  for  three  months  after  forfeiture  and  get  nothing 
for  it  at  all. 


77 

Ml>.  lUIODlvS.  And  it  has  beoorne  absoluto  in  that  thrfc 
months. 

]\1I{.  HANKIN.  Do  the  New  York  policies  j)roviflo  for  hr* 
automatic  issuance  of  paid-up  policies? 

'Mil.  THOMAS.  'No,  not  automatic  paid-up  insurance,  hut 
paid-up  insurance  on  demand. 

]\!H.  IJANKIN.  What  is  the  automatic  clause  in  your  con- 
tract? 

MK.  TH0]\1A.S.  We  have  not  any,  because  we  do  not  issue 
automatic  term  insurance  at  all.  But  with  every  policy  that  we 
issne  we  have  a  provision  for  paid-up  insurance  in  exactly  the 
form  provided  for  by  this  statute,  or  a  little  bettex  form. 

MH.  RANKIX.     At  the  request  of  the  insured  ? 

MR.  THOMAS.  Yes,  which  is  the  same  as  is  provided  for 
here.  That  is,  no  automatic  paid-up  insurance  is  provided  for  in 
our  statute.  Let  me  read  from  Section  450  of  the  Civil  Code: 
*'0r  upon  the  written  application  by  any  owner  of  such  policy, 
and  the  surrender  thereof  to  snch  Company  within  three  months 
from  such  noii-jjayment  of  ])remium,  to  the  purchase  of  a  non- 
participatin.i]^  paid-up  policy,  payable  at  the  time  the  original 
policy  would  be  })ayable  if  continued  in  force."  The  statute 
clearly  does  not  })rovide  for  automatic  paid-up  insurance. 

^l\{.  RANKIN.  1  so  understand,  but  docs  it  provide  for 
automatic  extended  insurance? 

THE  COMJIISSIONEH.  It  does,  provided  the  Company 
elects  to  take  that  view  of  it,  is  Mr.  Thoanas'  argument. 

MR.  TIIOilAS.  That  is  our  contention.  There  was  a  pro- 
vision in  the  first  policies  that  if  throe  anniuil  premiums  had 
been  paid,  upon  failure  to  pay  a  preniium.  the  policy  should  be 
carried  in  force  (ov  such  time  as  the  surplus  would  pay  the  pre- 
miums— 

IIU.  "\VTTKELK]^  I  observe  that  the  statute  emphasizes  what 
you  .cay,  .Mr.  Thomas.  Jt  says:  ''Unless  specifically  contracted 
l>etwcei\  the  insurer  and  the  insured  for  tomtine  insurjuuv.  or 
for  otlur  icini  or  jiai(l-u[)  insurance."  If  it  meant  what  the 
Commissioner  holds  it  tmnnis.  it  would  say,  "or  for  other  term 
and  paid-U]i  insurance." 

THE  CO:\i:\IISSIOXKIJ.  That  is  merely  a  limitation  of 
the  wordts  oivcn  b.'fore.  whvn  I  hi'  Legislature  in  it.-^elf  conteni- 
pla.ted  iha^t  evi'rv  policv  should  have  that  in. 


78 

A!l\.  RAXKJX.  If  Counsel  vriW  permit  me.  let  us  see  if  we 
can  2:et  the  Commissioner's  idea  of  the  meaning  of  the  term 
"paid-up  insurance." 

ME.  KELLOGG.  I  shall  have  to  leave  for  the  afternoon,  Mr. 
Commissioner.  I  presume  T  may  have  leave  to  submit  in  writing 
whatever  T  may  desire  to  say  upon  the  subject,  in  case  I  have  no 
opportunity  to  address  the  Commissioner  orally  upon  the  subject. 

THE  cbMi\riSSIONER.     Certainly. 

ME.  EANKIX.  If  we  can  get  your  idea  about  the  meaning 
of  the  term  "paid-up  insurance,"  Mr.  Commissioner,  it  may 
simplify  this  argument  to  some  extent,  because  then  we  will 
know  at  what  point  to  direct  our  artillery.  Do  you  claim  that 
paid-up  insurance  here  means  a  policy  which  is  originally  a 
fully  paid-up  policy? 

THE  COMMISSIONEE.  Yes.  I  understand  that  a  paid-up 
policy  is  where  the  insured  pays  the  premium  all  at  once,  as  there 
expressed.  In  other  words,  the  insured  may  take  out  a  policy 
for  $10,000,  and  pay  the  premium  upon  it  all  at  once. 

ME.  EANKIX.  The  testimony  here  this  morning  all  shows 
the  other  way.  does  it  not? 

THE  COMMISSIONEE.  I  am  not  going  to  get  into  a  dis- 
cussion upon  that.  I  will  find  upon  the  point  when  I  come  to 
it.     I  am  simply  giving  you  my  idea  fairly  now. 

ME.  McCIITCHEN.  A  policy  which  provides  for  the  issu- 
ance of  a  paid-up  policy  upon  the  happening  of  certain  contin- 
gencies is  not  i)aid-up  insurance  within  the  meaning  of  your  con- 
struction, then,  Mr.  Commissioner? 

THE  CO:\IMISSIONEE.  No,  not  as  I  view  it  now.  Of 
course  I  .=hall  consider  the  testimony  in  connection  with  the 
works  of  actuaries,  which  T  shall  myself  refer  to.  I  understand  a 
paid-up  policy  to  be  a  policy  upon  which  the  premiums  are  all 
paid.  The  very  nature  of  the  term  "paid-up  policy"  indicates 
that  there  is  nothing  more  to  be  paid  upon  it.  >o  far  as  premiums 
are  concerned.  My  idea  of  this  Act  is  simply  this:  I  think  the  in- 
tention of  the  Legislature  was  to  pass  a  law  providing  that  every 
contract  of  insurance  that  was  issued  should  have  the  stipulation 
within  it  which  is  sot  forth  in  this  Act.  I  am  satisfied  that  at 
the  time  that  Act  was  passed  there  were  some  interests  opposed 
to  that,  and  I  think  among  them  were  some  people  issuing  ton- 
tine policies,  and  some  issuing  term  policies,  and  some  issuing 


70 

paid-up  policies.  Those  people  were  (Ininj;  that  husiiK^ss  to  a 
large  extent.  And  I  think,  further,  that  they  went  to  Sacra- 
mento and  succeeded  in  having  this  exception  put  into  the  Act, 
so  that  under  the  ttrnis  of  this  law  as  it  was  finally  passed, 
persons  engaged  in  issuing  tontine  insurance,  term  insur- 
ance, and  paid-up  insurance,  were  not  within  the  statute 
as  to  such  ])olicies,  and  the  stipulation  did  not  have 
to  be  inserted  in  them.  I  also  think  it  was  the  intention 
of  the  Legislature  to  give  something  to  every  person  who 
took  out  a  life  jiolicy.  If  this  stipulation  is  put  in  the 
policies,  except  those  in  the  statute  excepted,  the  option  is  given 
to  the  insured  to  either  carry  his  original  policy  as  long  as  the 
reserve  will  pay  the  premium  or  else  to  take  a  paid-up  policy  at 
once.  If  Air.  Thomas'  reasoning  is  good,  it  seems  to  me  that  by 
putting  in  a  provision  siueh  as  he  mentions,  the  option  is  entirely 
taken  away  from  the  insured.  For  instance:  he  puts  in  a  stipula- 
tion that  the  insured  shall,  u])on  demand,  be  entitled  to  a  paid-up 
policy.  We  all  know,  as  a  matter  of  fact,  that  a  great  many 
people  never  read  a  ))olicy  at  all.  If,  under  the  stipulation  as 
given  by  AFr.  Thomas,  the  insured  makes  no  demand,  then  three 
months  after  the  lapse  occurs  the  policy-holder's  rights  are  en- 
tirely forfeited;  he  would  not  get  anything  whatever  thereafter. 
In  other  words,  he  must  make  his  demand  and  make  a  surrender 
of  his  policy  within  three  months  after  the  lapse,  or  he  gets 
nothing.  That  is  assuming  the  contract  to  be  as  Mr.  Thomas 
states  it  to  be  now. 

MR.  THO]\IAS.  r>ut  the  insured  can  have  the  paid-up  in- 
surance by  making  application  for  it. 

THE  COMMISSIONER.  lie  is  limited  to  that  right  simply. 
As  at  present  advised,  I  do  not  think  that  was  the  intention  of 
the  Legislature  as  shown  in  ibis  Act.  Section  1."")^  of  the  Civil 
Code. 

MR.  ;N[rNSELT>.  You  have  put  a  construction  upon  this 
law — 

THE  COM.MiSSIOXKK.  Mr.  Munsell,  you  have  had  your 
opportunity  to  be  heard.  The  case  it:  now  under  argumemt,  and 
I  think  I  shall  have  to  hold  to  the  rule  that  the  attorneys  pro- 
ceed with  the  argument.  It  is  impossible  to  have  so  many  at- 
tempting to  address  the  Commissioner  at  once. 


80 

ME.  EHODES.  Will  the  Commissioner  allow  me  to  make  a 
suggestion? 

THE  COMMISSIOXEE.     Certeinly. 

MR.  RHODES.  You  are  looking  at  the  matter  from  a  cer- 
tain standpoint.  If  you  will  he  kind  enough  to  look  at  it  from 
this  standpoint,  it  seems  to  me  that  you  might  come  to  a  different 
conclusion,  to  wit,  that  it  was  the  purpose  of  the  Legislature  that 
there  should  he  no  forfeiture  of  the  reserve.  H,  then,  the  law 
is  to  be  construed  in  such  a  way  that  there  shall  be  no  forfeiture 
of  the  reserve,  but  that  the  reserve  shall  be  applied  for  the  benefit 
of  the  insured — 

THE  CO.AIMISSIONER.  Jiut,  Judge,  there  is  a  forfeiture  of 
the  reserve  on  the  ease  that  Mr.  Thomas  gives,  because,  unless 
the  insured,  within  three  months  from  the  forfeiture,  goes  to  the 
Company  and  makes  a  dem.and,  he  gets  nothing. 

MR.  RH()DP]S.  There  would  be  a  forfeiture  ultimately  in 
that  case,  1  presume. 

MR.  RANKIN.  Do  not  the^se  New  York  policies  provide 
that,  in  the  event  of  forfeiture  by  the  insured  after  the  payment 
of  three  annual  premiums,  the  Company  shall  then  issue  its 
paid-up  policy  for  a  certain  amount? 

TPIE  COMMISSIONER.  Only  on  demand.  I  am  taking 
the  case  just  as  Mr.  Thomas  puts  it.  I  understand  his  argument 
to  be  that,  if  they  provide  in  their  policies  for  paid-up  insurance, 
which  paid-up  insurance  is  forfeited  absolutely  if  they  do  not 
make  a  demand  for  it  within  three  months  after  the  time  of 
forfeiture,  they  are  within  the  statute.  I  understand  him  that 
that  is  what  the  statute  authorizes. 

MR.  TPIOMAS.  And  that  is  exactly  what  the  New  York 
statute  authorizes. 

MR.  RIIODKS.  r  was  speaking  more  in  relation  to  the  Massa- 
chusetts law,  which  j)rovides  a  different  form  to  be  written  into 
the  policy.     It  is  self-acting  under  the  Massachusetts  law. 

THE  COMMISSIONER.  I  think  the  examination  I  have 
made  shows  that  there  is  a  great  distinction  in  the  matter  be- 
tween the  New  England  jxilieics  and  I  he  New  Yoj'k  policies.  I 
think  there  is  considerable  difference  between  the  New  York 
policies,  too.  So  you  do  no't  all  come  exactly  upon  the  same 
plane,  even  where  you  come  from  the  same  State. 

i\IIi.  THOMAS.     We  are  all   interested   in   this  jiroposition. 


M 


that  if  an  ori<riiial  [lolicy  contains  a  i-tipulalion  lor  tlic  issue  of  a 
paid-uj)  policy  upon  forfeiture  after  the  payment  of  three  an- 
nual preniiuiris,  it  is  good,  no  matter  what  it  contains.  Section 
88  of  the  New  York  law  is  exactly  like  our  statute  in  that  ri^peet. 
Every  one  of  these  New  York  Companies  have  been  issuing  poli- 
cies under  this  law.  As  a  matter  of  information,  I  will  say  to 
the  Commissioner  that  nine-tenths  of  the  policies  issued  by  the 
NcAV  York  Companies  give  to  the  insured  one  or  the  other  of 
those  two  alternatives.  That  has  heen  the  settled  construction 
in  New  York  ever  since  the  first  of  January,  1880.  You  will 
not  find,  except  where,  for  purposes  of  business,  and  on  policies 
that  carry  a  very  high  premium,  one  policy  in  a  hundred  used  by 
the  New  York  Companies  that  gives  to  the  insured  more  than 
one  of  those  two  alternatives.  He  can  have  one  or  the  other, 
hut  not  both. 

THE  COMMISSIONER.     Can  you  find  any  that  give  it? 

MR.  THOMAS.  I  do  not  know.  I  do  not  want  to  say  posi- 
tively.    I  will  say,  none  that  I  have  seen. 

MR.  WHEEEKR.  I  will  answer  that  I  have  seen  some  that 
do  give  it.  Cut  wherever  they  do  contain  such  provisions,  it  is 
always  coupled  with  the  condition  that  the  option  be  exercised 
within  thirty  days  of  the  date  of  forfeiture.  They  do  not  carry 
the  option  open  for  six  months,  as  the  New  York  law  requires 
they  shall  do  when  only  one  alternative  is  given. 

]\IR.  McCUTCHEN.  I  do  not  want  you  gentlemen  to  labor 
under  a  misappreh€nsion,  and  so  I  will  state  that  the  New  York 
Life  Insurance  Company  does  issue  just  such  a  policy  as  Mr. 
Thomas  says  he  thinks  never  has  been  issued.  Here  is  a  pro- 
vision which  has  been  employed  by  the  New  York  Life  Insurance 
Company  for  the  past  five  years:  "This  policy  cannot  be  forfeited 
after  it  shall  have  been  in  force  three  full  years,  as  hereinafter 
provided:  Eirst,  if  any  subsequent  premium  is  not  duly  paid, 
this  policy  will  be  endorsed  for  the  amount  of  paid-up  insurance 
payable  at  the  death  of  the  insured,  specified  in  the  table  on  the 
preceding  page,  less  the  value  of  any  indebtedness  on  this  policy, 
provided  demand  is  made  therefor  with  surrender  of  this  policy 
within  six  months  after  such  pa\nncnt:  or,  second,  if  any  subse- 
quent premium  is  not  duly  paid,  and  if  this  policy  is  not  sur- 
rendered as  provided  in  the    preceding    clau.'^e.  the    insurance 


82 


umler  this  i)olicy  will,  after  the  repayment  of  any  indebtedness, 
be  extended  without  request  or  demand  therefor,  for  the  amount 
of  (blank)  dollars  during  the  term  provided  in  the  table  on  the 
preceding  page,  payable  o^nly  if  the  insured  dies  within  said 
term.  At  the  end. of  said  term,  if  the  insured  is  then  living,  this 
jiolicy  shall  cease  and  determine." 

Till"]  COMMISSIONER.  That,  Mr.  AYheeler,  is  the  exact 
clause  upon  which  you  said  they  would  not  take  so  many  chances. 
The  New  York  Life,  upon  that  very  policy,  takes  a  six  months' 
chance. 

MR.  WIIEP]LER.  There  evidently  they  do.  In  the  policies 
in  this  State,  my  understanding  has  been  that  only  thirty  days 
have  been  allowed. 

]\IR.  THOMAS.    Mr.  Commissioner,  this  is  a  new  policy  to  me. 

THE  COMMISSIONER.  I  understood  you  and  Mr.  Wheeler 
to  say  that  it  would  be  absurd  to  say  that  the  Legislature  had , 
any  intention  of  carrying  or  giving  this  risk,  or  of  putting  this 
risk  on  the  Company  for  three  months.  Now  here  is  the  New 
York  Life  Insurance  Company  in  one  of  its  policies  giving  six 
months. 

MR.  McCUTCHEN.  I  do  not  want  to  allow  Mr.  Thomas  and 
Mr.  AVheeler  to  go  through  this  argument  under  the  impression 
that  no  such  policy  has  been  issued,  and  hence  it  was  that  I 
thought  it  best  to  call  their  attention  and  your  attention  to  it. 
I  was  not  willing,  Mr.  Commissioner,  to  hear  it  said  that  no  sound 
Company  could  do  it,  because  that  is  not  so,  as  appears  here. 

MR.  WHEELER.  But  I  persist  in  saying,  Mr.  Commissioner, 
that  if  your  construction  is  correct,  a  Company,  whether  sound  or 
not,  would  be  forced  to  give  three  months'  insurance  for  nothing. 
I  have  heard  of  rebates  given  by  Insurance  Companies  that  other 
Insurance  Companies  would  not  think  of  giving.  And  it  is 
possible  that,  in  order  to  get  business,  one  Company  would 
say,  "We  will  cany  it  two  weeks,"  while  another  would  say, 
"We  will  carry  it  six  months."  What  I  wanted  to  say  was,  that  I 
had  known  of  New  York  Companies  carrj'ing  them  for  thirty 
days,  and  saying,  "While  it  is  optional  for  us  to  do  one  thing  or 
the  other,  we  will  grant  both  of  these  alternatives  to  our  bene- 
ficiaries, if  they  will  exercise  their  option  within  thirty  days; 
and  we  will  carry  the  insurance  for  the  thirty  days  while  they 
have  it  under  consideration." 


83 


TJIE  COMMISSIONP:!!.  1  think  you  jjut  it  upon  that  basis, 
that  it  would  be  absurd  to  attribute  to  the  Legislature  any  inten- 
tion of  making  the  option  good  for  ninety  days.  I  do  not  think 
it  would  be  absurd  to  attribute  to  the  Legislature  the  idea  of 
making  the  period  ninety  days,  because  it  is  now  in  evidence  here 
that  the  New  York  Life  Insurance  Company  has  made  the  period 
six  months. 

MR.  WHEELER.  It  must  be  conceded  that,  pro  tempo,  that 
is  an  a.nswer.  But  the  fact  remains  that  the  Legislature  is  forc- 
ing ujx)n  the  Company  to  do  .something  for  nothing. 

MR.  THOMAS.  I  think,  Mr.  Commissioner,  that  the  repre- 
sentatives of  the  New  York  Life  will  say  that  this  a  novel  policy 
for  them.     Is  it  not  a  new  one? 

MR.  McCUTCJIEN.  I  think  they  have  been  issued  only  a 
few  years.  But  I  think  Mr.  Wheeler's  ans^ver  to  the  proposition 
is  a  very  good  one,  and  that  is,  that  Companies  are  all  the  time 
getting  up  new  forms  of  policy  for  the  purpose  of  securing  cer- 
tain lines  of  business.  The  New  York  Life  Insurance  Company 
has  seen  fit  to  offer  both  of  these  alternatives  in  one  policy. 
At  the  same  time,  for  the  thirteen  years  or  so  preceding 
the  time  when  it  began  issuing  these  policies,  and  while 
it  was  issuing  policies  under  this  new  law  of  New  York, 
which  is  just  the  same  as  ours,  no  one  in  New  York  con- 
strued the  statute  to  me«n  that  the  Company  was  under  the 
obligation  to  give  to  the  insured  both  of  the  alternatives. 

THE  COilMISSIONER.  That  may  simply  show  that  the 
Legislature  of  California  is  about  thirteen  years  ahead  of  the 
Legislature  of  New  York. 

MR.  THOMAS.  It  shows,  rather,  that  the  Insurance  Com- 
missioner of  California  is  perhaps  thirteen  years  ahead  of  the 
Insurance  Commissioner  of  New  York,  because  the  point  has  not 
been  raised  there.  And  for  the  first  thirteen  years,  I  am  sure 
that  the  New  York  Life  Insurance  Company,  and  the  Mutual 
Life,  and  the  other  Companies  that  issued  policies  under  this 
Section  88  of  the  insurance  law  of  New  York,  gave  to- the  insured 
one  or  the  other  of  these  alternatives,  but  not  both.  Is  not  that 
correct? 

MR.  McCUTCHEN.     That  is  my  understanding. 

MR.  THOMAS.     Up  to  the  time  that  you  gave  out  these  new 


84 

policies,  at  least,  which  was  two  or  three  years  ago,  that  was  your 
idea  of  the  construction  of  the  New  York  statute? 

MK.  McCUTCHEN".  So  far  as  any  construction  of  the  statute 
by  the  New  York  Insurance  Commissioner  is  concerned,  the 
question  never  was  raised  there.  This  form  of  policy  of  which 
I  speak  was  not  issued  because  it  was  required  by  the  New  York 
Commissioner  that  we  were  not  complying  with  the  New  York 
statute.  That  had  nothing  to  do  with  it.  The  best  evidence  of 
that  is  the  fact  that  the  other  New  York  Companies  have  not 
met  it  by  the  issuance  of  a  similar  policy. 

MR.  EANKIN.  What  is  the  form  of  the  policy  under  dispute 
now?  I  confess,  Mr.  Commissioner,  I  do  not  perceive  the  bear- 
ing of  this  upon  the  general  proposition  before  your  Honor. 

THE  COMMISSIONEE.  The  argument  is  addressed  to  the 
Commissioner  and  is  for  his  benefit,  Mr.  Rankin,  and  I  under- 
stand Mr.  Thomas  very  thoroughly.  If  the  other  gentlemen 
have  any  other  ideas  that  they  want  to  suggest,  they  will  have 
an  opportunity  after  Mr.  Thomas  has  concluded.  I  suggest  that 
Mr.  Thomas  now  proceed.  I  understand  his  position  thoroughly 
up  to  the  present  time. 

MR.  THOMAS.  I  will  state,  Mr.  Commissioner,  what  I  think 
this  section  means,  and  I  add  to  my  statement  that  the  same 
statute  has  been  in  force  in  New  York  for  the  same  period  of 
time,  and  that  all  the  New  York  Companies  for  the  last  three  or 
four  years,  although  some  of  them  may  have  given  both  of  these 
alternatives  as  a  matter  of  business,  have  never,  under  the  statute, 
given  but  one  of  the  alternatives  named  to  the  insured. 
Whether  the  question  has  ever  been  discussed  in  any  inferior 
court,  I  cannot  say.  But  I  do  know  that  for  the  past  seventeen 
years  the  Companies  have  been  following  the  New  York  statute 
and  the  California  statute,  and  not  until  two  or  three  years  ago, 
when  the  New  York  Life  Insurance  Company  say  they  intro- 
duced this  policy  giving  the  insured  the  option  of  the  alternative, 
was  any  such  policy  issued.  And  during  all  of  that  time  the  con- 
struction has  been  uniform  in  both  New  York  and  California  as 
to  the  meaning  of  the  statute.  It  seems  to  me,  therefore,  that  if 
you  give  any  meaning  at  all  to  the  disjunctive  words  used  in  this 
section  of  the  Civil  Code,  the  only  thing  your  Honor  can  compel 
Insurance  Companies  to  give  in  this  State  is  one  of  these  two 


85 

alternatives,  after  the  expiration  of  the  original  contract  of  in- 
surance. 

I  hope,  however,  Mr.  Commissioner,  that  you  will  understand 
that  I  do  not  rest  my  case  upon  this  contention.  I  have  simply 
argued  the  matter  to  your  Honor  upon  my  understanding  of  it. 
But  there  is  something  here  that  cannot  be  improved  upon,  and 
that  is  ilr.  Donnels'  cun.-jtiuction  of  the  excepti(5ns.  I  have 
always  claimed,  and  1  think  I  have  expressed  it  several  times  to 
your  Honor,  that  inasmuch  as  we  hav^  a  specific  contract  for  jjaid- 
up  insurance,  your  jurisdiction  ceases.  If  we  have  any  specific 
contract  for  paid-up  insurance,  which  we  have  defined  to  you 
here  to-day  to  be  the  alternative  of  some  other  policy  and  not  an 
original  contract  in  the  strict  sense  of  the  term;  if  we  have  a 
covenant  in  our  policies  for  any  kind  of  paid-np  insurance,  our 
ease  is  beyond  your  jurisdiction. 

THE  COMMISSIONER.  Do  I  understand  you  to  claim 
that,  by  reason  of  the  peculiar  provisions  of  Section  -150  of  the 
Civil  Code  of  California,  or  as  a  general  proposition  of  law,  that 
insured  and  the  Company  could  waive  anything  they  saw  fit? 

MR.  THOMAS.  No,  I  do  not.  I  claim  it  directly  under  this 
Section  450  of  the  Civil  Code. 

THE  COMMISSIONER.  The  difference  between  us  is,  that 
I  refer  the  exception  contained  in  this  section  to  the  original 
contract,  while  these  provisions  only  go  into  effect,  as  I  under- 
stand it,  after  the  forfeiture  of  the  original  contract. 

MR.  THOMAS.  It  seems  to  me  that  certain  things  are  patent 
from  the  statement  made  by  Mr.  Donnels  and  all  of  these  other 
expert  witnesses.  Of  course  a  policy  that  is  issued  upon  the 
payment  of  a  single  premium  is,  in  fact,  a  paid-up  policy.  The 
gentlemen  here  all  stated  that  they  call  a  policy  a  paid-up  policy 
when  there  is  nothing  further  to  be  paid  upon  it.  But  there  is  a 
clear  distinction  between  that  class  of  policy,  ordinarily  known 
as  single-payment  or  single-premium  policy,  and  a  policy  that  is 
issu-ed  by  virtue  of  a  covenant  in  a  preceding  contract.  In  the 
original  contract,  it  is  provided  that  under  certain  circumstances 
the  insured  will  be  entitled  to  a  paid-up  policy.  The  contract 
that  is  issued  to  him  in  that  covenant  is  called  a  paid-up  policy, 
it  is  always  the  sequel  to  or  the  result  of  a  previous  understand- 
ing between  the  parties.  It  never  refers  to  an  original  contract 
in  the  strict,  technical  language  of  insurance.     You  may  call  the 


8(i 

.Jirst  contract  mentioned  a  paid-up  policy,  or  a  single-premium, 

or    one-premium    policy,  or  a  single-payment,  or  one-payment 

policy.     It  is  never  technically  a  paid-up  policy.     And  if  your 

■  Honor  will  oibsen-e,  that  is  the  reason  why  the  term  '^'paid-up  in- 

liuianct:'"'  is  used  in  this  -section. 

What  is  this  paid-up  insurance  that  they  speak  of  afterwards 
that  we  geir  on  demand  for  the  net  reserve  of  our  policy  upon 
Joxfeiture?  It  is  not  an  original  contract.  It  is  paid-up  insur- 
iince  exactly  in  the  sense  that  the  woid  "term"  is  used  in  the  first 
.part  of  the  section.  It  is  not  an  original  contract  there;  it  is  a 
.substitule  for  some  other  contract,  and  one  that  naturally 
.ilows  from  one  of  the  covenants  of  the  original  contract. 
They  are  using  the  correct,  term  there.  There  is  no  question 
about  it.  Just  as  the  expression  "term  insurance"  is  used  subse- 
quently in  the  statute,  and  used  correctly:  insurance  which,  upon 
the  payment  of  the  premium  annually,  lasts  for  a  certain  number 
.of  years,  and  then  absolutely  expires. 

So  it  seems  to  me.  Mi-.  Commissioneir,  that  whichever  horn 
of  the  dilemma  you  take,  we  are  beyond  criticism.  .Because,  if 
the  section  here  did  not  intend  that  we  should  offer  to  our 
policy-holders  the  one  alternative  only,  we  have  at  least  a  specific 
contract  for  paid-up  insurance,  and  we  have  had  it  all  these  years. 

In  regard  to  the  Connecticut  Mutual,  the  same  argument  ex- 
actly applies  as  that  made  with  regard  to  the  Mutual  Life,  with 
this  exception,  that  the  contract  for  paid-up  insurance  in  the 
Connecticut  Mutual  is  automatic;  it  does  not  require  any  de- 
mand at  all  on  the  part  of  the  insured  to  make  it  operative. 

THE  COMMISSIONEE.  Then  in  the  Connecticut  Mutual, 
the  policy-holder  could  not  be  left  without  insurance  after  the 
expiration  of  three  months? 

MR.  THOMAS,     ^o. 

THE  COMMISSIONER.  Under  the  New  York  policies,  he 
could? 

MR.  THOMAS.  Yes;  as  they  have  been  construed  for  seven- 
teen years,  he  could. 

THE  COMMISSIONER.     I  want  to  suggest  another  thing  to 

,you  gentlemen:    In  the  event  of  my  opinion  being  against  you, 

some  question  has  been  raised  about  the  past.     Do  you  under- 

:  stand  that  it  is  within  the  power  of  the  Commissioner  to  waive 

.  those  things? 


Si 


MU.  TUU.MAS.  Yuur  power  to  revoku  is  fur  the  purpose  of 
protect! ii;j^  your  wards,  wlio  are  our  policy-holders,  from  wrong 
and  liarin.  Whatever  they  have  suffered,  they  have  their  cause 
or  action  for.  Our  policies  must  be  void  if  your  construction  is 
right;  that  we  have  no  authority  to  issue  them.  I  do  not  say 
that  you  have  the  right  to  punish  us,  because  I  do  not  sec  how 
you  could  prevent  ns  from  qualifying  to-morrow  again  and  going 
oi;  with  business. 

THE  COMMISSIONEE.  There  is  a  provision  in  the  PoliH- 
c-al  Code  as  to  when  the  Insurance  Commissioner  shall  issue  a 
license. 

MR.  THO^MAS.  Jjut  there  is  only  one  provision  in  the  Code 
which  permits  you,  without  notice,  to  revoke  our  licenses,  and 
that  provides  that  in  case  we  do  not  comply  with  the  terms  of  the 
section,  you  can  revoke  our  licenses.  That  is  the  only  power  of 
revocation  which  you  have.  But  suppose  a  new  Company  comes 
into  the  field? 

THE  COMMISSIONEE.  That  would  be  different.  My 
question  to  you  is,  suppose  an  old  Company  were  appl}ing  for  a 
license,  and  I  should  say,  "Yon  have  not  compiled  with  the  law 
of  the  State  in  the  past." 

MR.  THOMAS.  I  do  not  know  whether  you  could  issue  us  a 
new  license  or  not.  You  certainly  could  not  revoke  the  old  one 
— and  you  will  understand  that  I  am  saying  it  in  the  most 
friendly  spirit  possible,  because  our  relations  have  been  friendly 
for  a  great  many  years.  You  are  in  a  very  delicate  position. 
You  have  got  to  make  up  your  mind  absolutely  as  to  what  this 
law  is.  If  you  should  commit  an  error,  the  result  will  be  serious 
to  you,  and  the  damage  would  be  very  great  to  us.  You  will 
appreciate  that. 

THE  COMjVIISSIONER.  I  appreciate  the  great  interests 
that  are  at  stake  here,  and  I  should  very  much  dislike  to  make 
an  order  revoking  your  licenses,  because,  coming  from  the  head 
of  the  Insurance  Department  of  the  State,  it  would  affect  you 
very  seriously. 

MR.  THOMAS.  Of  course  you  are  not  here  as  a  public  prose- 
cutor. The  Insurance  Commissioner  is  appointed  particularly 
for  the  purpose  of  protecting  a  certain  class  of  the  citizens  of 
the  State.  That  class  comprises  those  persons  who  either  are 
policy-holders,  or  members  in  the  mutual  companies,  or  those 


who  apply  for  policies  or  membership.  Any  such  course  as  would 
result  in  the  -revocation  of  the  licenses  of  these  Companies  is 
going  to  create  the  greatest  possible  damage  to  your  wards. 
Your  wards  are  going  to  be  the  first  ones  to  suffer.  The  Mutual 
Life  Insurance^  Company  of  New  YotIc  might  pack  up  its  goods 
and  supplies  and  leave  the  State.  The  persons  who  will  be  the 
principally  injured  will  be  those  who  have  our  policies. 

THE  COMMISSIONEB.  With  reference  to  the  future,  is 
th^re  any  likelihood  of  a  concert  of  action  as  to  the  issuance  of 
future  policies  by  the  Companies,  embodying  the  provisions 
according  to  the  construction  I  have  intimated,  in  case  I  should 
come  to  such  a  conclusion,  or  do  the  Companies  intend  to  stand 
on  the  forms  of  policies  at  present  in  use? 

ME.  THOMAS.  I  have  not  had  an  opportunity  to  learn 
whether  they  would  amend  their  policies  so  as  to  conform  to  your 
construction,  but  my  present  impression  is  that  if  you  should 
demand  that  both  of  these  alternatives  should  be  given  in  all  of 
the  policies  except  those  excepted  by  the  statute,  we  would  not 
agree  to  do  it,  but  should  have  to  withdraw  from  the  field.  I  do 
not  think  the  ]\Iutual  Life  Insurance  Company,  of  Xew  York, 
feels  that  it  can  afford  to  give  both  of  these  alternatives.  I  know 
that  in  the  communications  I  have  had  with  Mr.  Forbes  and  with 
Mr.  McClintock,  they  have  said  that  it  was  perfectly  impossible, 
in  their  view  of  the  matter,  to  give  to  their  policy-holders  both 
of  these  alternatives,  automatic  extended  term  insurance  and 
paid-up  insurance. 

THE  COMMISSIONER.  The  Mutual  Life,  as  I  understand 
it,  presents  features  that  are  not  presented  in  the  case  of  those 
other  Companies.  The  other  day  you  made  some  mention  of  a 
test  case.  Are  you  willing  to  make  a  test  case  upon  the  matter 
as  you  have  stated  it? 

MR.  THOMAS.  I  do  not  know  why  the  burden  should  be  im- 
posed upon  me. 

MR.  RANKIN.  Let  me  make  a  suggestion  in  that  respect. 
If  your  Honor  should  come  to  the  conclusion,  either  as  to  one 
of  these  Compamies  or  many  of  them,  that  it  is  probable  they 
have  not  made  their  policies  conform  to  the  law,  and  you  are  in- 
clined to  revoke  their  licenses,  that  we  may  at  least  have  notice  of 
that  action  in  time  to  apply  to  the  Court  for  relief,  in  such  way 
as  we  might  be  entitled  to  do. 


89 

MK.  McCUTCHKN.  I  underptaricl  the  Commissioner  to  say 
that  he  will  frive  us  ample  notice.  ■ 

TIIK  COMMISSIONER.  No,  I  do  not  say  that  at  all.  The 
case  of  the  ]\[utiial  I^ife,  as  I  iindenstand  it,  presents  features  that 
that  of  no  other  Company  here  presents. 

MR.  THOMAS.  How  does  our  policy  difTcr  from  the  policy 
of  the  Equitable,  or  the  policy  of  the  Manhattan,  or  the  policy 
of  the  Home  Mutual? 

MR.  McAllister.    There  is  no  dilTerence  at  all. 

THE  C01\IMISSI0NER.  As  has  been  said  by  Mr.  Thomas, 
there  are  a  g-reat  many  interests  involved  hei^.  Instead  of  my 
going  ahead  and  acting  against  all  of  these  Compainies,  suppose  I 
should  take  the  case  of  Mr.  Thomas,  and  not  decide  the  other 
cases  at  all,  and  so  a  test  case  could  be  made. 

MR.  THOMAS.  But  that  is  rather  hard  on  me — not  on  me 
personally,  but  on  my  Company.  Why  should  you  make  a  target 
of  us? 

THE  COMMISSIONER.  You.r  Company  is  a  large  Company, 
and  that  occurred  to  me  as  a  suggestion. 

MR.  THOMAS.    So  are  they  all  large  Companies. 

THE  COMMISSIONER.  J^ut  if  I  should  revoke  the  licenses 
of  all  the  Companies,  then,  as  you  say,  it  will  fall  on  a  great  many 
people  in  the  State. 

]\IR.  Til  Oil  AS.  But  why  should  you  visit  it  ujion  our  policy 
holders? 

THE  COMMISSION  lOR.  Because  you  are  in  a  position  to 
meet  it,  as  I  understand. 

MR.  RANKIN.  Do  you  understand  that  your  power,  Mr. 
Camniissio'ner,  under  this  statute,  goes  to  the  extent  of  destroy- 
ing the  right  of  the  Insurance  Companies  to  do  business  here, 
without  application  to  a  Court  at  all? 

MR.  THOMAS.  There  is  no  question  about  that  what€ver. 
Section  -loO  of  the  Civil  Code  expressly  provides  for  it. 

THE  COMMISSIONER.  I  do  not  desire  to  get  into  a  discus- 
sion of  the  law  in  the  matter. 

MR.  McCUTCHEN.  Is  this  asking  too  much,  Mr.  Commis- 
sioner: that  if  you  should  reach  the  conclusion,  after  having 
sifted  this  question  to  your  own  patisfaction,  that  the  Companies 
have  not  compli-ed  with  the  statute,  and  that  it  is  your  duty  to 


90 

revoke  their  certificates,  you  give  the  Companies  a  week  or  ten 
days'  notice  of  your  decision?  . 

THE  COMMISSIONEE.  If  that  question  was  only  a  qiieStioa 
that' "concerned  these  Life  Companies,  I  would  say  tha^t  I  would 
do  it.  But,  so  far  as  I  am  con<?erned,  there  are  a  great  many 
other  questions  involved  in  this  department,  and  numerous  ap- 
plications have  been  made  here  for  test  cases,  and,  following  what 
I  believed  to  be  my  duty,  I  have  declined  them  all. 

ME.  McCUTCHEISr.  If  you  could  simply  give  us  an  inkling 
of  the  constriiotion  you  would  give  to  the  s'tatute,  that  would  be 
snfficient  for  lis  to  act  upon. 

THE  COMMISSION EE.  T  have  tried  to  express  my  views 
npon  the  matter  as  wc  have  gone  along. 


AEGUiAIEX^r    OF    CHAELES    S.    WHEELEE,    ESQ., 

Attorney  for  the  Provident  Life  Assurance  Society. 

ME.  WHEELEE.  I  would  like  to  ask  a  few  questions.  Take 
the  commonest  form  of  life  insurance  policy,  issued,  say,  to  a 
man  at  the  age  of  twemty-two  or  twenty-three  or  twenty-four 
years.  The  amount  to  be  paid  by  him  annually  is  very  small. 
Suppose  it  does  not  increase  at  all.  Suppose  that,  ac- 
cording to  the  eoutract  with  the  Compauy,  he  is  entitled, 
without  medical  exaanination,  upon  the  payment  of  liis 
anoiual  premium,  to  the  issuance  of  a  new  policy.  That  is 
a  yearly  tenn  policy.  He  pays  his  premiums,  and  now  he  has 
paid  three  full  premiums  in  the  commonest  form  of  life  insur- 
ance. Under  your  construction  of  the  statute,  upon  such  a  pol- 
icy, is  the  policy-holder  entitled  to  any  benefits  by  way  of  ex- 
tended insurance  or  l)y  way  of  jjaid-up  jiolicy.  in  the  case  of  a 
lapse? 

THE  CO:\rMISSTONEE.  I  think  the  case  you  put.  of  insur- 
ance from  year  to  year  is  term  insurance,  and  under  my  consitruc- 
tion  of  the  statute  at  present,  that  would  be  excluded.  As  I  un- 
derstand it,  the  young  man  comes  into  the  insurance  office,  and 
he  says,  "1  want  to  insure  my  life  for  $10,000  for  a  year." 

ME.  THOMAS.     No.  that  is  not  it. 

ME.  WHEELEE.    That  is  right,  but  the  policy  provides  that 


!)1 


it  may  be  renewed  without  meclical  examination  upon  payment 
of  the  same  amount  at  the  beginning  of  the  u€xt  year. 

THE  COMMTSSIONKrx.  That  would  be  term  insurance  from 
year  to  year. 

MU.  TTAWES.    That  is  an  ordinary  life  policy. 

MR.  McAllister.    No,  that  is  not  an  ordinary  life  policy. 

MR.  WHP'ELER.    Well,  ordinary  yearly  term  insurance,  th<n. 

MR.  PIAWP]S.     That  is  not  called  term  insurance  at  all. 

THE  COMMISSIONER.  Take  this  case:  A  man  goes  into 
am  insurance  office,  and  he  says,  "I  want  to  insure  my  life  for 
$10,000."  They  take  his  age  and  give  him  a  medical  examina- 
tion, and  if  that  is  passed  favorably,  they  issue  him  a  policy.  If 
that  policy  runs  for  three  years,  during  which  time  he  has  paid 
his  premiums,  and  then  there  is  a  forfeiture,  the  question  arises 
of  his  rights  under  this  statute.  It  is  my  opinion,  as  at  present 
informed,  that  he  is  entitled  to  an  opticm  of  the  alternatives  men- 
tioned in  the  statute  here.  That  is  as  near  as  I  can  understand 
the  illustration  now  given.  I  am  frank  to  say  that  I  do  not  un- 
derstand these  terms  clearly  enough  to  go  into  a  discussion  of 
them. 

UR.  WHEEL]i:R.  What  I  wish  to  do,  Mr.  Commissioner,  is  to 
go  into  a  discussion  or  explanation  of  what  I  understand  to  I)e 
the  meaning  of  this  statute.  And  unless  I  misunderstand  all  that 
has  been  said  here,  it  is  possible  my  views  are  different  from 
those  expressed  Ijy  the  other  gentlemen,  present  or  absent,  an<l 
if  I  am  right,  it  might  have  a  considerable  influence  with  your 
Honor  in  reaching  the  conclusion  that  vou  are  now  seekim:'  to 
reach. 

In.  the  iirst  place,  you  are  satisfied  that  the  Legislature  in- 
tended to  protect  policy-holders.  You  are  satisfied  that  the  Le- 
gislature intended  to  enact  a  statute  that  would  require  all  Com-' 
panics  to  have  this  specific  stipulation  in  their  policifs,  when-by. 
whether  we  take  it  in  the  alternative  or  disjunctive  sense  (and  it 
certainly  must  be  taken  in  one  or  the  other)  the  two  privileges 
are  to  be  accorded.  I  say  to  you  that  my  understanding  of  life 
insurance  is,  that  any  policy  of  insurance,  certainly  after  it  has 
been  in  force  for  more  than  one  year,  has  the  element  of  reserve 
in  it.  If  any  insurance  man  here  disagrees  with  me,  1  would  like 
to  know  it,  because  it  is  the  foundation  of  what  I  am  abort  to 


1)2 

saj'.  I  iniderstand,  for  instance,  that  if  I  take  an  insurance  pol- 
icy, such  as  I  hold  in  one  of  the  Connecticut  Companies,  which 
costs  me  about  $19,  I  think  it  is.  for  six  months,  or  for  a  year, 
upon  a  policy  of  $2,500 — I  understand  that  upon  that  policy  the 
element  of  reserve  comes  in,  and  after  I  have  paid  upon  that  pol- 
icy for  ten  years,  under  the  Connecticut  statutes,  although  it  is 
a  simple  form  of  life  insiirauce,!  can  surrender  my  policy, because 
I  have  co'utracted  with  the  company,  and  the  statute  requires  that 
the  company  should  make  this  contract,  and  draw  down  a  hand- 
some Slim.  I  was  somewhat  surprised  m  looking  through  some 
old  policies  the  other  day,  to  find  that  T  could  get  $250  upon  a 
policy  which  had  cost  me  not  more  than  a  semi-annuail  premium 
of  $20.  .  Now.  how  is  that  money  which  they  pay  back  to  me 
made  up?  As  I  understand  it,  it  is  made  up  from  this  element 
of  reserve.  In  other  words,  let  me  state  the  proposition  broadly, 
that  in  evory  form  of  life  insurance,  after  it  has  been  in  force 
more  than  one  year,  there  is  this  element  of  reserve,  and  that  is 
what  we  mean  when  we  talk  about  reserve,  according  to  the  four 
per  cent,  tables  of  mortality.  Tf  in  every  form  of  policy  that  co^n- 
tinuos  for  movo  than  one  year,  not  according  to  the  original  con- 
tract, but  that  i.'^  renewed  from  year  to  year,  just  as  T  have  re- 
newed my  Conne'ctieut  policy,  if  you  please,  from  year  to  year — 

THE  COMMISSTONER.    T  do  not  understand  that  kind  of  a 
policy.     I  do  not  know  what  you  would  call  it. 
,    ME.  WHEELEIa.    T  call  it  an  insurance  policy,  and  I  do  not 
want  anything  else  here  at  this  time.     T  am  telling  your  Honor 
that  there  is  an  elcme-nt  of  reserve  in  it. 

MK.  THOMAS.  Do  you  mean  the  Connecticut  Mutual,  Mr. 
AVheeler? 

MR.  WHEELED.  Yes.  The  form  of  policy  of  which  I  am 
speaking,  and  you,  Mr.  Commis-sioner,  and  you,  gentlemen,  may 
call  it  anything  you  please,  and  I  got  it  in  the  cheapest  possible 
way  that  that  particular  company  will  issue  a  policy.  Therefore 
my  point  is,  that  upon  that  policy,  whether  issued  by  that  com- 
pany, w  whether  a  similar  policy  issued  by  anot;her  company, 
there  conies,  in  contemplation  of  our  Legislature,  this  element  of 
rese'rve.  After  such  a  jjiilicy  lias  l)i,'en  paid  on  for  three  years,  it 
was  the  intention  cf  our  Legislature  that,  upon  a  forfeiture  of 
that  policy,  the  rights  of  the  insured  should  not  cease,  but  that 
he  should  have  something  else:  he  should  either  have  extended 


93 

term  insuranco.  in  wliich  this  reserve  should  he  used,  or  he  should 
have  a  paid-up  policy,  the  amount  of  the  reserve  heinp^  applied 
for  that  purpose,  or  he  might  do  something  else — he  might  make 
a  speoific  contract  with  the  company  for  a  ditTercnt  arrangement. 
That  is  precisely  what  T  did  ten  years  ago  Avhen  I  took  out  a 
policy  of  insurance  in  the  Connecticut  Mutual  Life  Insurance 
Company.  That  is  precisely  what  I  did  when  I  took  out  that 
policy,  which  ])olicy  of  insurance,  according  to  tahles  appended, 
tell  me  that,  although  it  was  the  simplest  kind  of  policy  known  to 
the  law,  anxl  for  the  cheapest  rates  that  a  young  man  of  my  years 
could  get,  that  when  I  had  paid  for  ten  years  1  should  have  this 
amount  of  money  availahle  to  me,  if  I  so  elected. 

We  have  heard  here  the  history  of  the  law  from  the  person 
who  drafted  the  statute.  Before  the  statute  was  passed,  an  ex- 
ce})tinn  was  engrafted  upon  it.  Instead  of  excepting  this  terra 
insurance  in  the  way  in  which  I  undersitancl  your  Honor  to  in- 
terjireet  the  language  of  the  statute,  the  meaning  of  that  excep- 
tion is  no  other  than  this:  We  will  make  every  insurance  com- 
pany that  doc?  business  in  California,  do  one  of  two  things,  ir- 
res])ective  of  the  character  of  policy  that  it  issues;  we  will  either 
force  that  company  to  make  a  specific  contract  for  some  differ- 
ent kind  of  extended  term  insurance  than  we  have  proA-ided  for 
here,  or  for  some  different  kind  of  paid-up  insurance  tham  we 
have  provided  for  here  in  Section  450  of  the  Civil  Code,  or  we 
will  not  let  that  company  do  bu'siness  in  California.  In  other 
words,  the  Legislature  said  in  effect:  From  now  on  we  are  going 
to  have  no  such  thing  in  this  State  as  a  man  paying  upon  an 
insurance  ])olicy  where  this  reserve  elemcn-t  is  always  considered, 
for  a  j)enod  of  three  years,  and  then,  if  he  lapses  in  the  payment 
for  the  fourth  year,  permit  the  insurance  company  to  calndy  say 
to  him.  "You  did  not  pay  for  the  fourth  year,  and  you  shall  not 
get  a  cent  or  any  rights  under  your  policy." 

THE  COimrSSlOXEK.  Do  you  know  the  condition  of  the 
law  when  this  statute  was  eaiacted? 

^IK.  WHEELED.     Yes. 

THE  C():MMISS10XEK.  It  required  oven  more  than  that— 
that  the  reserve  should  he  paid  to  the  insurers. 

:MR.  WHEELEE     T  undei^tand  that. 

THE  C()MMISS1(»XI-:1a.     ^o  it  was  not  with  the  idea  of  giv- 


94 

ing  the  insured  any  more  than  he  had  under  the  law  as  it  stood 
before. 

]\1K.  WHEELER.  I  understand  that,  and  I  understand  that 
the  law  was  passed  for  the  purpose  of  giving  him  just  the  privi- 
leges enumerated.  I  have  considered  it  in  this  connection,  and 
I  think  that  whatever  may  be  said  of  the  force  of  my  argument, 
that  it  certainly  has  a  logical  basis  upon  which  to  proceed.  It 
was  possibly  intended  at  first,  drafting  the  law  according  to  the 
policy  that  was  sanctioned  by  my  friend  at  my  right,  that  every 
policy  must  have  this  specific  provision  that  Section  450  now 
contains.  Other  gentlemen  interested  in  insurance  said,  "No; 
we  have  policies  that  do  not  grant  that  thing  in  that  form,  al- 
though there  is  a  sort  of  equivalent  for  it.  Therefore  let  us  pro- 
vide that  every  insurance  company  must  have,  in  all  of  its  poli- 
cies, something  that  will  recognize  this  element  of  reserve  and 
give  an  equivalent  for  it.  Let  us  give  them  something  that  they 
must  put  in,  if  they  do  not  put  in  something  else,  but  let  them 
be  free  to  specifically  contract  with  the  individual  for  extended 
term  insurance  after  three  premiums  have  been  paid,  or  other- 
wise, as  they  see  fit,  or  for  a  paid-up. policy." 

THE  COMMISSIONER.     Or  for  tontine  insurance,  too? 

MR.  WHEELER.    I  will  add  that  to  it. 

THE  COMMISSIONER.  You  understand  that  it  would  be 
physically  impos.%ible  to  get  tontine  insurance  after  a  forfeiture? 

MR.  WHEELER.'   I  understand  that. 

THE  COMMLSSIONER.  That  is  one  reason  why  I  do  not 
think  your  position  is  correct.  If  it  is  correct,  then  the  com- 
pany wuuld  not  only  contract  for  specific  ])aid-up  insurance,  or 
for  term  insurance,  but  it  could  also  contract  for  tontine  insur- 
ance. That,  Insurance  men  toll  me.  would  be  impossible.  Now 
those  three  terms  are  used  in  the  same  sentence. 

:\iR.  AV'HEELER.  My  interpretation  is  this:  That  this  statute 
means,  and  I  would  make  it  mean,  that  after  the  word  "other" 
in  the  expression  "or  for  other  term  or  paid-up  insurance,"  the 
Legislature  meant  to  say  "extended  term  or  jiaid-up  insurance." 

THE  COMMISSIONER.  I  draw  your  attention  to  the  word 
before  that  in  the  same  sentence,  the  word  "tontine." 

MR.  WHEELER.  The  conclusion  of  my  contention  is,  that 
where  they  say  in  the  statute,  "or  for  other  term  or  paid-up  in- 


<»• 


).) 


Buraince,"  it  means  ''for  other  term  insurance  than  we  have  pro- 
vided for  in  this  Section  450,  or  for  other  extended  term  insur- 
ance than  we  have  provided  for  here  in  this  Section  450,"  And 
the  reference  to  the  tontine  form  there  is  nothing  more  than 
an  intention  to  except  the  tontine  policies  entirely. 

THE  CO^nriSSIONER.  In  that  I  agree  with  you  entirely, 
and  if  you're  going  to  except  tontine  entirely,  why  do  you  not 
go  on  and  except  other  paid-up  and  other  term  insurance? 

:MR.  WHEELEE.  Listen  to  the  conetructioai  that  I  contend 
for,  and  ?ee  whether  it  is  opposed  to  the  construction  you  put 
upon  it.  The  statute  says:  "Every  contract  or  policy  of  insur- 
ance hereafter  made  by  any  person  or  corporation  organized  un- 
der the  laws  of  this  State,  or  under  those  of  any  other  State  or 
country,  with  and  upon  the  life  of  a  resident  of  this  State,  and 
delivered  within  this  State,  shall  contain,  unless  specifically  con- 
tracted between  the  insurer  and  the  insured  for  tantine  insur- 
ance, or  for  other  term  or  paid-up  insurance,  a  stipulation  that 
when,  after  three  full  nmuial  prcniiiinis  have  been  paid  on  such 
policy,"  etc. — 

THE  COMMISSIONER.  I  do  not  think  those  words  have 
reference  to  the  act  of  forfeiture  at  all. 

MR.  WHEELER.  That  is  wherein  I  understand  you  to  take 
the  opposite  view,  but  I  wish  to  impress  upon  you  what  I  con- 
sider the  reasons  for  my  view.  What  does  the  Legislature  exact 
of  the  company?  It  says  that  after  three  full  annual  premiums 
have  been  paid,  then,  call  the  policy  what  you  may,  call  it  by 
any  one  of  the  multitude  of  names  by  which  companies  have  seen 
fit  to  designate  their  policies,  if  you  will;  but  after  three  full  an- 
nual premiums  have  been  paid,  we  exact  of  you  a  provision  that 
the  insured  may  have  the  benefit  of  extended  insurance,  or  other 
paid-up  insurance.  That  is  what  the  Legislature  says.  But,  it 
says,  if  nothing  else  is  dene  by  the  company  in  the  way  of  mak- 
ing the  contract,  we  insist  that  it  shall  have  such  a  provision  as 
specified  here  in  Section  450  of  the  Civil  Code;  but  we  leave  the 
company  and  the  injured,  not  free  to  provide  for  a  forfeiture  af- 
ter this  money  has  been  paid  in  on  the  ])olicy,  but  we  leave  them 
free  to  make  any  contracts  they  please  for  this  extended  insur- 
ance, or  any  contract  they  please  for  this  paid-up  insurance.  I 
contend  that  that  construction  is  entirely  in  harmony  with  the 


90 


intent  of  the  Legislature,  and  wdth  its  exactions  as  contained 
thea-^;  that  it  complies  with  the  principles  laid  down  by  tlie 
Legislature;  that  it  invoh'es  nothing  more  than  the  maldng  of 
what  seems  to  be  a  nnieli  involved  statute  absolutely  plain,  by 
putting  after  the  word  "other"  and  before  the  wo'rd  "term,"  the 
word  "extended." 

Let  me  ask  your  Honor  this:  Why  was  that  word  there  used? 
What  term  insurance  is  provided  for  afterwards  in  the  statute? 
It  is  extended  term  insurance,  is  it  not?  You  agree  with  me 
there? 

THE  C0:MMTSST0NEE.  I  do  not  know  that  I  do  agree  with 
you.  I  think  the  word  "other"  might  just  as  well  not  have  been 
there. 

]\1R.  McCUTOHEX.  Are  you  not  bound  to  assume  that  it  was 
intended  to  be  there? 

THE  COMMISSIOXEE.  I  do  not  know  as  to  that.  I  do 
not  know  that  that  is  the  proper  way  of  construction. 

ME.  McCITTCHEN".    Can  you  disregard  that  word? 

THE  COMMLSSIONEE.  I  think  that  if  that  word  is  against 
the  entire  meaning  of  the  whole  statute  and  the  meaning  of  the 
Legislature,  I  could,  yes.  I  do  not  think  I  can  get  at  it  by  asking 
the  gentleman  who  handed  the  bill  to  the  Legislature. 

ME.  WHEELEE.  This  much  is  true:  that  the  use  of  that 
Avord  "other"  means  .something.  It  says  you  shall  either  give 
this  extended  term  insurance,  or  other  term  insurance.  It 
gives  it  a  reasonable  meaning.  Otherwise,  as  you  say,  the  word 
"other"  mig-hl  1)e  disregarded,  if  your  construction  is  co'rrect. 
If  my  interpretation  is  correct,  the  word  "other"  is  to  be  re- 
garded. 

ME.  EPIODES.  I  do  not  think,  Mr.  Commissiouer.  that  we 
shall  conclude  the  argument  this  evening,  and  if  you  are  going  to 
have  a  sitting  in  the  morning.  I  think  I  will  be  excused  and  re- 
turn at  that  time. 

THE  COMMISSIOXEE.  T  shall  continue  the  hearing  in  the 
morning  at  ten  o'clock,  and  I  shall  be  glad  to  hear  from  you  at 
that  time. 

ME.  WHKELEH.  I  am  practically  at  an  end,  Mr.  Commis- 
sioner. The  only  thing  I  wish  to  say  further  is  this:  That  I 
M'ont  about  the  construction  of  this  statute  with  my  mind  tixed 
upon  the  idea  that  "other  term  insurance"  meant  that  unless 


I). 


there  uas  ;•.  contract  for  tcnii  insurance  that  was  other  than  ami 
different  from  anything  provided  for  here,  and  tliat  it  related 
simply  to  term  insurance,  and  that  that  was  intended  to  be  an 
exception.  1  concluded  my  investigation  with  the  firm  convic- 
tion that  the  expression  ''other  term  insurance"  meant  "other 
extended  term  insurance";  that  is  to  say,  term  insurance  nothing 
like  the  first,  which  arose  only  after  there  had  been  a  forfeiture. 

TIIK  CO]yiMISSIONEE.  Perhaps  we  had  better  take  an  ad- 
journment now. 

MK.  THOMAS.  I  understand  that  Mr.  McCutchen  has  to  ar- 
gue a  case  to-morrow,  which  will  perhaps  detain  him  from  being 
present  here,  and  I  would  request  that  he  be  allowed  to  proceed 
this  evening,  as  we  all  want  to  hear  from  him. 

MB.  McCUTCHEX.  I  shall  not  take  very  much  time,  Mr. 
Commissioner. 

THE  C0MMIS8I0XEK.     Verv  well.    Proceed. 


ARGUMENT  OF  E.  J.  McCUTCHEX,  ESQ., 

Attorney  for  the  New  York  Life  Insurance  Company  and  the 
Germania  Life  Insurance  Company. 

MR.  McCUTOHEN.  The  principal  features  of  this  case  have 
been  so  thoroughly  discussed,  Mr.  Commissioner,  that  I  do  not 
care  to  make  any  further  reference  to  them.  I  think  the  explana- 
tion made  by  Mr.  Donnels,  and  the  arguments  of  Mr.  Thomas 
and  Mr.  Wheeler,  cover  the  principal  points  at  issue  very  fully. 

It  seems  to  me,  however,  that  sufficient  stress  has  not  been  laid 
upon  the  first  two  or  three  lines  of  this  statute.  It  says:  "Every 
contract  or  policy  of  insurance  hereafter  made  by  any  person  or 
corporation  organized  under  the  laws  of  this  State,  or  under  those 
of  any  other  State  or  country,  with  and  upon  the  life  of  a  resident 
of  this  State,  and  delivered  within  this  State,  shall  contain,  unless 
specifically  contracted  between  the  insurer  and  the  insured  for 
tontine  insurance,  or  for  other  term  or  paid-up  insurance,  a 
stipulation,"  etc. 

Your  honor  will  notice  that  the  language  is  that  every  policy 
of  insurance,  unless  it  contains  a  specific  contract  between  the 
insurer  and  the  insured  for  tontine  insurance,  or  for  other  term 


9-8 

or  paid-up  insurance,  shall  contain  a  certain  stipulation.  In 
other  words,  it  is  the  form  of  insurance  which  is  to  be  provided 
for  in  the  contract  or  policy  of  insurance.  A  policy  of  insurance 
is  one  thing,  and  the  foTm  of  insurance  is  another. 

If,  then,  the  construction  which  you  are  contending  for  was 
the  one  intended  by  the  legislators  who  passed  this  section  of  the 
Code,  it  seems  to  me  they  would  have  said,  "Every  contract  of 
insuianoe,  or  every  policy  of  insurance,  unless  it  be  a  tontine 
policy,  or  a  term  policy,  or  a  paid-up  policy,  shall  contain  a  stip- 
ulation" providing  for  certain  insurance.  Now,  a  contract  of  in- 
surance, or  a  policy  of  insurance  which  contains  a  contract  for 
tontine  insurance,  o'r  that  upon  the  happening  of  certain  con- 
tingencies term  insurance  shall  result,  or  a  paid-up  policy  shall 
be  issued,  or  the  policy-holder  shall  be  entitled  to  paid-up  insur- 
ance, is  a  specific  contract  between  the  insurer  and  the  insured 
for  tontine  insurance  in  the  one  case,  or  for  paid-up  insurance 
or  term  insurance  in  the  other  case.  Unless  it  is  a  specific  con- 
tract for  tontine  insurance,  or  for  term  or  paid-up  insurance,  the 
policy-holder  is  not  entitled  to  any  of  those  forms  of  insurance. 
He  is  only  entitled  to  them  because  there  is  a  specific  contract 
between  him  and  the  company,  by  the  terms  of  which  he  is  to 
receive  tontine  insurance,  or,  upon  the  happening  of  certain  con- 
tingencies, he  is  to  receive  term  or  paid-up  insurance. 

If,  then,  the  contract  for  an  ordinary  life  policy  contains  pro- 
visions, by  which,  in  the  event  the  policy-holder  shall  have  paid 
three  annual  premiums  and  shall  then  have  failed  to  pay  any- 
thing more,  he  shall  then  be  entitled  to  term  insurance  at  a  cer- 
tain rate,  or  shall  be  entitled  to  paid-up  insurance  at  a  certain 
rate,  there  is  a  specific  contract  between  the  insurer  and  the  in- 
sured for  term  or  paid-u])  insurance.  It  seems  to'  me  there  can 
be  no  escape  from  that  argument. 

If  you  look  further  into  this  section  of  the  Civil  Code,  you  will 
find  that  the  words  "paid-up  policy"  are  used.  In  other  words, 
there  seemed  to  be  an  intention  on  the  part  of  the  Legislature  to 
draw  a  distinction  between  a  paid-up  policy  and  paid-up  in- 
.surance.  After  the  contingency  has  happened,  and  the  policy 
has  been  or  is  about  to  be  issued,  it  is  then  a  paid-up  policy;  but 
when  the  original  contract  is  made,  it  is  a  contract  for  paid-up 
insurance,  or  for  term  insurance,  as  the  case  may  be.  But  this 
construction  seems  to  me  to  be  perfectly  clear,  that  it  is  the  con- 


99 

tract  for  insurance  which  is  to  provide  for  either  tontine  insur- 
ance, or  for  term  or  paid-up  ijKsurancL'.  That  follows  th* 
definitions  given  by  the  various  Mana^a-rs  and  Agents  of  the 
term  "tontine  insurance."  They  say  that  the  tontine  feature  may 
be  introduced  into  any  form  of  policy.  It  may  he  an  ordinary 
life  policy,  or  a  ten-  or  twenty-payment  life  policy,  but  the  ton- 
tine feature  may  be  introduced;  and  when  the  tontine  feature  is 
introduced  into  the  ordinary  life  policy,  or  ten-  or  twenty-pay- 
ment life  jiolicy,  it  is  a  contract  far  tontine  insurance,  and  is 
taken  out  of  the  operation  of  this  statute. 

So  when  the  contract  provides,  as  I  have  said,  that  upon  the 
happening  of  certain  contingencies,  the  holder  of  the  policy 
shall  be  entitled  to  term  insurance  or  to  paid-up  insurance,  that 
is  just  as  much  a  specific  contract  for  term  or  paid-up  insurance 
as  the  other  was  a  specific  contract  for  tontine  insura^nce. 

As  I  have  said,  this  question  has  been  so  thoroughly  discussed 
that  I  do  not  care  to  spend  further  time  upon  it.  But  I  do  want 
to  call  attention  to  this  policy.  The  New  York  Life  Insurance 
Company  is  now  complying,  and  has  for  several  years  complied, 
with  the  construction  which  your  Honor  places  upon  this  sta- 
tute. We  claim  that  the  policies  that  it  issued  prior  to  1892  were 
in  all  respects  a  compliance  with  the  provisions  of  the  statute. 
But  the  question  now  a.rises,  assuming  that  you  shall  hold  that 
the  policies  issued  prior  to  1892  did  not  comply  with  the  statute, 
whether  on  account  of  that  you  are  going  to  take  from  the  New 
York  Life  Insurance  Company  its  license  to  do  business.  I  take 
it  that  the  case  is  something  like  this:  We  will  assume  that  the 
New  York  Life  Insurance  Company  was  issuing  a  policy  which 
your  ]>redecessor  considered  was  not  a  compliance  with  this  sec- 
tion, and  said,  "T  am  not  satisfied  with  that  form  of  policy."  To 
which  the  Company  replied,  "Very  well.  What  is  your  objec- 
tion?" The  Commissioner  communicated  the  objection,  and  the 
Agent  said,  "We  will  communicate  with,  the  Home  Office."  The 
Home  Office  being  communicated  with,  raised  no  objection,  and 
the  Agent  said  to  the  Commissioner,  "We  have  no  objection  to 
issuing  a  form  of  policy  which  wnll  be  satisfactory  to  you  as  In- 
surance Commissioner  of  California."  And  thereupon  the  Com- 
pany changed  the  form  of  the  policy  to  meet  the  \vishes  of  the 
Commissioner,  and  from  that  day  forward  issued  a  policy  which 
complied  with  the  construction  of  the  Insurance  Commissioner. 


100 

When  you  eanie  into  office,  you  found  that  the  policy  which  the 
Company  was  issuing  was  in  all  respects  as  you  considered  it 
should  be.  i\.re  you,  on  the  ground  that  the  Company  did  at 
one  time  issue  a  policy  which  you  think  did  not  comply  with  the' 
statute,  going  to  take  from  it  the  license  to  do  business  in  this 
State?  It  seems  to  me  that  the  only  matter  with  which  you  axe 
concerned  is:  Has  this  Company  complied  with  my  construction 
of  the  law  of  this  State  ever  since  I  have  been  in  office?  I  think 
it  would  be  a  violation  of  your  duty  to  attempt  to  revoke  a  license 
for  some  omission  or  oversight  that  occurred  long  before  you 
became  Commissioner. 

MR.  WHEELEE.  For  the  purposes  of  the  record,  and  that 
my  position  may  be  more  clearly  before  your  Honor,  let  me  state 
this: 

The  purpose  of  the  Legislature  in  passing  this  Act  was  to  pro- 
hibit Insurance  Companies  from  confiscating  the  reserve  which 
enters  into  the  consideration  of  Insurance  Men,  no  matter  what 
the  form  of  the  policy  issued.  Accordingly,  the  Legislature  said: 
If  the  Comapny  devises  another  plan  whereby  it  will  give  some- 
thing for  this  reserve,  in  the  event  of  a  lapse,  we  insist  that  it 
shall  adopt  this  plan  which  we  lay  down  in  Section  450  of  the 
Civil  Code.  While  exacting  that  the  Company  shall  make  some 
return  for  this  xeserve,  and  shall  not  confiscate  it,  we  leave  the 
Company  itself  free  either  to  be  more  libral  than  this  statute  re- 
quires, where  it  has  made  no  specific  contract,  or  to  be  less  lib- 
eral than  this  contract  requires,  under  specific  contract.  All  we 
exact  is,  that  there  shall  be  nothing  so  small  given  to  the  insured 
that  it  amounts  practically  to  a  subterfuge  to  avoid  the  statute, 
and  amounts  to  a  confiscation  of  this  reserve.  Such  I  under- 
stand to  be  the  purpose,  the  intent,  and  the  efFect  of  Section  450 
of  the  Civil  Code  of  the  State  of  California. 

MR.  McAllister.  I  have  but  a  few  words  to  say,  Mr.  Com- 
missioner, and  I  promise  that  I  will  not  detain  you  more  than 
three  minutes,  if  I  am  allowed  to  conclude  to-night. 

THE  COMMISSIONER.    Very  well.    You  may  proceed. 


lUl 

ARGUMENT    Ol'    KLLIOTT   McALLIS'l'KH,    K8Q., 
Attorney  for  the  lloine  Life  Insurance  Company,  of  New  York. 

MR.  McALLISTP'R.  I  simply  desire  to  call  your  att<.*ntion, 
Mr.  Commissioner,  to  that  ])ortion  of  Mr.  Donnels'  brief  which 
analyzes,  as  it  were,  that  phrase,  "other  term  or  paid-up  insur- 
ance"; and  to  call  your  attention  fo  the  grammatical  form  of  the 
clause  of  wliach  that  is  a  part,  and  tu  its  punctuation.  It  says, 
"  for  tontine  insurance,"'  and  then  follows  a  comma  and  the 
words  "or  for  other  term  or  paid-up  insurance."  That  word 
"  other"  we  of  course  insist  has  a  purpose  in  that  statute.  And 
we  insist,  further,  that  it  is  not  the  part  of  any  court  interpreting 
a  statute  to  omit  a  word  from  it,  unless  it  is  there  for  no  purpose 
whatsoever;  unless  the  court  can  give  it  no  meaning.  And  we  say 
;hat,  that  word  "other"  being  in  the  statute,  we  must  find  a 
meaning  for  it,  if  possible.  It  is  my  contention  that  it  limit*  the 
word  "term,"  that  it  limits  the  word  "paid-up."  What  term  or 
paid-up  insurance  is  referred  to  in  that  section,  other  than  that 
stipulated  for?  That  word  "other,"  modifying  "term"  and 
"paid-up,"  cannot  refer  to  tontine,  unless  tontine  is  a  form  of 
term  or  paid-up  insurance.  We  have  heard  the  testimony  of  all 
these  gentlemen  that  tontine  insurance  is  not  a  form  of  t^rm 
insurance  or  of  paid-up  insurance.  That  word  "other"  must  re- 
fer, then,  not  to  the  words  "tontine  insurance"  that  have  pre- 
ceded, but  to  the  "term  or  paid-up  insurance"  that  is  described 
further  on  in  the  sentence,  because  that  word  "other"  is  there 
with  an  object.  It  is  to  place  an  alternative  between  that  term 
insurance  that  may  be  specified  by  the  contracting  parties,  or 
some  other  term  insurance.  Now,  what  is  that  other  term  in- 
surance? It  is  specified  in  this  very  Section  450  of  the  Civil 
Code,  and  is  that  term  insurance  described  in  the  remaining  por- 
tion of  the  section.    And  the  same  reasoning  applies  to  the  use 

of  the  word  "paid-up." 

0 

An  adjournment  of  the  proceedings  before  the  Commissioner 
was  taken  at  this  point  until  the  following  day,  Tuesday,  January 
18,  1898,  at  ten  o'clock  a.  ra. 


lOi 


TUESDAY,  JANUAEY   18,   1898,   10  A.   M. 


THE  CO]\IMISSIONER.  We  will  now  proceed  with  the  in- 
vestigation. I  hope  to  hear  from  the  Counsel  present  who  did 
not  present  arguments  yesterday. 

MR.  RANKIN.  Before  proceeding  with  the  argument,  Mr. 
Commissioner,  I  desii-e  to  call  as  a  witness  Mr.  Clarence  M. 
Smith,  of  the  Northwestern  Mutual  Life  Insurance  Company. 

THE  COMMISSIONER.    Very  well. 

MR.  RANKIN.  Mr.  Smith  was  unable  to  be  present  yester- 
day, and  hence  his  testimony  comes  a  little  out  of  order. 

THE  COMMISSIONER.     I  will  be  glad  to  hear  from  Mr. 

Smith. 

0 


STATEMENT  OF  CLARENCE  M.  SMITH,  ESQ., 

General  Agent  of  the  Northwestern  Mutual  Life  Insurance  Com- 
pany. 

MR.  RANKIN.  Q.  Mr.  Smith,  how  long  have  you  been  con- 
nected with  the  insurance  business? 

A.     About  sixteen  years. 

Q.  And  where  have  you  heen  conneoted  with  that  business 
during  that  time? 

A.  For  the  last  twelve  years,  in  California;  prior  to  that  time, 
in  Wisconsin. 

Q.  With  what  company  are  you  connected  here,  and  in  what 
eapa;city  are  you  connected  with  it? 

A.  I  am  connected  with  the.  Northwestern  Mutual  Life  In- 
surance Company,  of  Milwaukee,  Wisconsin,  and  in  the  capacity 
of  General  Agent  for  California. 

Q.  Has  your  connection  with  the  insurance  business  famil- 
iarized you  with  the  diffeTent  kinds  and  classes  of  life  insurance? 

A.     Yes,  sir. 

Q.  Be  kind  enough  to  state  to  the  Commissioner  what,  in 
your  opinion,  is  the  broadest  and  most  general  classification  of 
life  insurance,  and  life  insurance  contracts  and  policies. 

A.  Originally,  life  insurance  was  written  as  a  whole-life  pro- 
position.   But  the  companies  found  people  who  did  not  want 


lo;; 

llioir  policies  to  lun  always,  and  who  did  not  want  to  pay  always, 
and  so  they  settled  on  making  terms  for  those  people.  So  we 
divide  life  insurance  primarily  into  whole-life  insurance  and 
term  or  period  insurance. 

Q.  Every  policy  of  insurance  which  is  issued  by  any  com- 
pany falls  within  one  ot  the  other  of  those  classes? 

A.     Yes,  sir. 

Q.  It  is  either  for  the  entire  life  of  the  individual  insured, 
or  for  a  term  of  years? 

A.     Yes,  sir. 

Q.  In  the  latter  event,  being  for  a  certain  period  during  his 
life? 

A.     Yes,  sir. 

Q.  Can.  you  tell  us  some  of  the  names  of  whole-life  insurance 
policies,  those  w^hich  axe  generally  recognized  as  whole-life  pol- 
icies? However,  I  will  ^vithdraAv  that  question  for  the  present, 
because  I  want  to  get  the  matter  in  better  order.  There  is  an- 
other division  of  life  insurance,  dependent  upon  the  plan  of  in- 
surance, is  there  not?  For  instance,  tontine  insurance  is  a  plan 
of  insurance? 

A.     Yes,  sir. 

Q.  The  time  when  payments  for  premiums  are  made  consti- 
tutes another  plan  of  insurance? 

A.     There  are  numerous  plans  of  that  kind. 

Q.  Numerous  plans,  but  all  of  those  plans  eventually  resolve 
themselves  into  two  grand  classes,  w^hole-life  and  term  insurance? 

A.     Yes,  sir. 

Q.  Is  tontine  insurance  a  term  insurance  or  a  whole-life  in- 
surance? 

A.     Most  decidedly  a  term  insurance. 

Q.  Every  policy  which  is  written  as  a  tontine  policy  is  for  a 
term  of  years? 

A.     Yes,  sir. 

Q.     And  not  for  a  whole  life? 

A.     No,  sir. 

MR.  THOMAS.  "Mr.  Rankin,  that  is  directly  opposed  to  all 
of  the  testimony  which  has  heretofore  been  given  here  before 
the    Commissioner.      Your    defense    will    be    upon     different 


104 

gTouuds  from  the  defense  of  the  rest  of  the  companies  repre- 
sented here,  if  that  is  the  position  you  take. 

THE  COMMISSIONER.  We  have  heard  all  the  testimony 
that  has  been  given,  and  I  think  I  imderstand  it  perfectly. 

THE  WITNESS.  I  was  nnfortnnate  in  no-t  being  here  yes- 
terday, and  in  not  hearing  the  testimony  of  the  other  gentlemen. 

ME.  EANKIN.  Q.  Will  you  explain  to  the  Commissioner 
why  a  tontine  policy  is  always  a  term  policy? 

A.  It  hardly  seems  to  need  explanation.  The  tontine  prin- 
ciple fixes  a  tenn,  at  the  end  of  which  certain  settlements  may 
be  had.  It  may  become  a  feature  of  any  form  of  any  participat- 
ing policy  that  we  write.  For  instance,  a  policy  may  be  issued 
for  a  ten-year  term,  or  for  a  fifteen-year  term,  or  for  a  twenty- 
year  term,  and  prior  to  the  expiration  of  that  term  no  complete 
settlement  can  be  had  on  the  policy.  Should  death  occur  before 
the  end  of  the  tontine  term,  the  face  of  the  policy  only  is  paid, 
no  accounting  being  made  of  dividend  aocumulations  on  the 
policy,  because  it  has  not  reached  its  term  or  period  of  settle- 
ment. 

Q.  Originally  tontine  insurance  was  written  for  a  term  of 
years,  the  benefit  of  an  accumulation  or  reserve  going  to  the  sur- 
vivor, was  it  not? 

A.     Originally  the  entire  reserve  went  to  the  survivor. 

Q.  It  was  a  gamble  on  who  should  live  the  longest  of  the 
number  of  persons  contributing  to  the  tontine  fund? 

A.     Yes,  sir. 

Q.  Then  it  became  a  gamble  among  a  number  of  persons,  cov- 
ering a  definite  period? 

A.     Yes,  sir. 

Q.  A  definite  number  of  years,  as,  for  instanoe,  those  who 
should  survive  ten  years  would  participate  in  the  tontine  distri- 
bution for  that  ten  year  period.     Is  that  correct? 

A.     Yes,  sir. 

Q.  Other  policies  were  on  a  fifteen-year  term,  and  others  still 
on  a  twenty-year  term,  and  in  each  case  all  who  continued  their 
payments  and  survived  the  particular  period  named,  participated 
in  the  distribution. 

A.     That  is  correct. 

THE  COMMISSIONER.    Q.    When  you  say  it  is  term  insur- 


105 

ance,  yon  mean  now  not  the  original;  the  original  tontine  insur- 
ance was  not  term  insurance  at  all? 

A.     Oh,  yes;  it  was  tenn  insurance. 

^m.  RANKIN.    Q.    It  always  was,  was  it? 

A.  It  always  was  term  insurance,  yes.  The  only  difference 
between  what  was  known  as  original  tontine  and  free  tontine 
or  semi-tontine  insurance,  or  other  names  that  we  use,  is  simply 
how  much  we  distribute.  At  the  end  of  the  tenn,  we  make  the 
distribution. 

Q.  That  is  to  say,  it  does  not  run  for  the  whole  life,  or  until 
the  death,  of  any  individual? 

A.     That  is  correct. 

Q.  \\'hole  life  insurance  always  runs  until  the  death  of  the 
insured,  while  all  other  kinds  of  insurance  run  for  definite  peri- 
ods during  the  life  of  the  insured? 

A.     Yes,  sir. 

THE  COMMISSIONER.  ().  Then,  Mr.  Smith,  when  the 
Legislature  uses  the«e  words  in  Section  -150  of  the  Civil  Code, 
"  unless  specifically  contracted  between  the  insurer  and  the  in- 
sured for  tontine  insurance,  or  for  other  term  or  paid-up  insur- 
ance," you  understand  tontine  insurance  to  be  one  form  of  term 
insurance,  while  paid-up  insurance  is  another  form? 

A.  Yes,  sir.  Tontine  insurance  is  one  form  of  term  insur- 
ance, and  paid-up  insurance  is  another  form  of  insurance,  but  it 
is  not  term  insurance. 

]\IR.  RANKIN.  Q.  And  that  must  have  been  the  view  wliich 
the  persons  who  passed  this  laAv  had? 

A.  They  could  not  have  had  any  other  view  and  used  the  ex- 
pression "or  other  term  insurance"  there. 

Q.  Mr.  Smith,  I  wish  you  would  be  kind  enough  to  inform 
the  Commissioner  something  about  the  various  kinds  of  term 
insurance,  exclusive  of  original  and  pure  tontine  insurance. 

A.  Well,  we  have  eiidowment  insurance,  which  is  a  term 
insurance. 

Q.  Be  kind  enough  to  explain  what  the  provisions  of  a  term 
endowment  policy  are. 

A.  The  ])rovi.^ions  are  that  it  shall  be  settled  at  a  definite 
period  specified  in  the  contract.  Payments  may  be  made  for  ten 
years,  or  fifteen  years,  or  twenty  yeare.    We  start  in  with  a  ten- 


106 

year  endowment  term,  or  a  fifteen-year  endoAvment  term,  or  a 
twenty-year  endowment  term,  and  even  run  up  to  a  forty-yeai 
endowment  term,  but  the  payments  may  be  made  for  ten  years, 
or  fifteen  years,  or  twenty  years,  or  run  thTougb  the  term. 

Q.  In'  a  term  endowment  policy,  is  it  always  the  expectation 
of  the  inisnrer  that  the  insured  shall  outlive  the  term? 

A.     Quite  the  contrary. 

Q.     "What  is  the  expectation? 

A.  Will  yon  please  repeat  that  question?  I  think  I  misunder- 
stood it. 

Q.  Is  it  n-ot  a  fact  that  it  is  the  antfcipation  or  expectation 
of  the  insurance  company,  in  all  term  insurance,  that  the  in- 
sured shall  outlive  the  term,  according  to  the  mortality  tables? 

A.  Yes,  sir.  In  a  great  measure,  everything  is  based  an  the 
idea  tliat  he  will  outlive  the  term. 

Q.  That  is,  term  insurance  is  based  upon  the  expectation  that 
the  insured  shall  live  out  the  term,  while  whole  life  insurance 
is  naturally  based  upon  the  expectation  that  the  insured  shall 
die  before  the  insurance  accrues. 

A.     Yes,  sir. 

Q.  I  desire  to  hand  you  one  of  the  policies  issued  by  your 
company,  in  which  it  is  designated  that  this  policy  is  issued  on 
the  semi-tontine  plan,  and  its  tontine  period  is  (blank)  years. 
State  whether  or  not  that  is  a  term  policy,  or  a  whole  life  policy? 

A.  It  is  a  term  policy;  it  is  never  issued  except  for  a  definite 
term. 

Q.  Tiiat  is  one  of  the  forms  of  insuraniee  which  your  company 
has  used? 

A.     Yes,  sir. 

Q.  State  to  the  Commissioner,  by  an  examination  of  the  pol- 
icy, if  you  care  to  cxaminie  it,  what  options  are  given  by  that 
policy  to  the  insu'red. 

A.  We  specify  In  the  first  place  tlial  the  term  shall  be  ten, 
or  fifteen,  or  twenty  years,  whichever  is  selected  at  the  time  the 
application  is  made.  At  the  end  of  the  term  of  the  contract, 
then,  we  offer  the  insured  several  options:  first,  to  withdraw 
in  cash  the  acciimulated  surplus  proportioned  by  the  company 
to  its  policies.  I  will  make  my  explanation  a  little  more  brief 
than  the  wording  here.  The  second  is  to  convert  that  surplus 
into  an  annuity,  whic-h  shall  be  paid  to  the  insured.     If  it  were 


107 

an  ordinary  life  policy,  then,  cooivei-'tcd  into  an  ordinary  life,  and 
continued  on  that  basis,  the  surplus  would  assist  him  in  paying 
his  future  premiums.  If  it  wore  a  policy  on  which  the  premi- 
ums had  ceased  with  the  term  of  the  tontine  policy,  it  would  be- 
come an  annuity  to  him  for  life.    That  is  the  second  option. 

THE  COMMISSIONEE.  Q.  That  looks  to  the  end  of  the 
term,  does  it? 

A.  Yes,  sir.  Thirdly,  the  surplus  could  be  used  for  the  pur- 
pose of  purchasing  a  paid-up  addition  to  the  policy. 

MK.  RANKIN.  Q.  Will  you  please  explain  what  you  mean 
by  ''addition  to  the  policy"? 

A.  If  the  policy  were  for  one  thousand  dollars,  and  the  sur- 
plus at  the  end  of  the  period  had  accumulated  to  three  hundred 
dollars,  the  company  would  let  the  insured,  provided  he  was  in 
good  health,  add  as  much  to  the  policy  as  the  three  hundred 
dollars  would  puirchase  in  a  single  premium.  We  offer  a  fourth 
option,  viz.:  cash;  that  is,  the  insured  may  have  the  eaitire  re- 
serve under  the  policy,  together  with  the  surplus  which  may  have 
accumulated  from  dividends. 

Q.     He  may  have  that  paid  to  him  in  cash,  you  mean? 

A.  We  would  pay  that  amount  in  cash,  yes.  Fifthly,  instead 
of  drawing  his  cash  down  in  one  sum,  he  could  talce  such  insur- 
ance as  the  entire  cash  would  purchase  at  a  single  payment. 

Q.  In  addition  to  those  options,  which  are  given  to  the  in- 
sured at  the  expiration  of  the  tontine  insurance  period,  is  that 
otherwise  a  non-forfei table  policy?  Turn  to  the  first  page  of  the 
policy  and  examine  that. 

A.     Yes,  sir. 

Q.  What  is  the  provision  with  reference  to  its  non-forfeitable 
character? 

A.  If  the  insured  shall  have  made  three  or  more  annual  pay- 
ments, he  shall  be  entitled  to  such  paid-up  insurance  as  the  re- 
serve on  the  policy  will  purchase  as  a  single  payment. 

Q.  That  is  provided  a^  his  right  absolutely  in  the  policy,  and 
in  addition  to  that,  if  he  pays  during  the  whole  tontine  period, 
he  is  then!  entitled  to  the  exercise  of  any  of  the  five  options 
which  you  have  specified  ? 

A.     Yes,  sir. 

Q.  Can  you  state,  as  an  expert  on  the  subject  of  iii.^uranoe, 
whether  those  options  are  more  favorable  to  the  insurrd  than 


108 

those  \vhicli  arc  provided  by  Section  450  of  the  Civil  Code  of 
California? 

A.     I  judge  they  are,  yes,  as  I  understand  the  Code. 

Q.     That  is,  it  gives  him  all  those  rights — 

THE  COMMISSIONER.  I  do  not  think  it  is  necessary  to 
go  into  that,  Mr.  Rankin.  Mr.  Smith's  opinion  in  the  matter 
is  not  important. 

MR.  RANKIN.  1  do  not  know  about  that,  Mr.  Commissioner. 
The  witness  is  an  expert  insurance  man. 

THE  COMMISSIONER.  But  he  is  not  an  expert  in  passing 
on  this  law.  I  am  sorry  that  I  cannot  recognize  him  to  that  ex- 
tent. You  are  asking  liim  now  as  to  the  law  of  the  matter.  I  do 
not  know  whether  that  would  make  any  difference,  whether  it 
was  more  favorable  or  not.  I  do  not  think  it  is  fair  to  go  through 
that  with  Mr.  Smith. 

MR.  RANKIN.  I  assume,  of  course,  that  what  you  want  to 
do  is,  not  to  forfeit  the  right  of  insurance  companies  to  transact 
business  here,  if  the  insurance  companies  complied  with  the  law 
aind  more,  too. 

TITl'.  COMMISSIONER.  No,  but  I  do  not  care  to  have  Mr. 
Smith  pass  on  this  policy.  If  that  is  going  to  be  done,  we  had 
■better  call  all  the  gentlemen  who  have  given  testimony  here  back, 

J\IR.  RAXKTN.  If  they  choose  to  give  such  testimony,  it 
might  be  well.  1  understand  this  is  a  record  which  we  may  have 
tfl  use. 

,  TllK  COMMISSIONER.  It  makes  no  difference  m  that  re- 
gard whether  this  is  a  record  or  not.  So  long  as  the  examina- 
tions are  before  mo.  I  want  only  wliat  is  proper  Ijrought  out,  and 
I  do  not  think  that  is  proper.  ^J'hat  would  not  cut  any  figure 
with  me  as  Commissioner.  T  do  not  think  there  is  any  neoessity 
for  cumbering  the  record.  1  have  here  in  the  ofifice  the  policies 
of  every  company  doing  business  in  the  State.  They  can  be  made 
parts  of  the  record  without  proceeding  in  that  way. 

MJi.  RANKIN.  Mr.  Commissioner,  with  all  due  deference  to 
you,  the  question  which  occurred  to  me,  and  which  brought  this 
specific  line  of  questioning  on  policies,  was  this:  that  this  record 
ought  to  show  the  policies  upon  which  you  pass. 

THE  COMMISSIONER.  I  will  let  every  policy  of  Mr. 
.Smith's  be  considered  as  in  the  record,  and  will  consider  it  in 


making  Uj)  my  iiiind,  as  1  intend  to  consirlpr  nil  tlie  policies  of  the 
various  compaTiies,  as  I  have  before  stated. 

Q.  1  understand  lliat  the  jwlicies  you  have  handed  me  in 
response  to  my  request,  Mr.  Smith,  cover  all  the  policies  issued 
by  your  company  in  this  State? 

A.     Yes,  sir. 

().     x4nd  you  have  issu-ed  all  of  these  policies  in  California? 

A.  I  cannot  say  that  we  have,  because  there  are  many  forms 
thai,  while  we  do  issue  them  occasionally,  are  very  little  used. 

THE  COMMISSIONER.  I  suppose  there  had  better  be  an  ad- 
mission on  the  part  of  each  of  the  companies  represented  here 
that  they  have  used  all  of  the  various  policies  presented  by  them 
respectively  to  me,  within  this  State. 

iMK.  McCUlX'IIEN.  1  cannot  admit  that  as  far  as  one  of 
the  companies  I  represent  is  concerned,  the  New  York  Life. 
They  have  sent  mo  out  something  over  a  hundred  forms 
that  have  been  in  use  by  them  since  the  first  of  July,  1880.  In 
other  words,  this  bundle  includes  a  copy  of  every  form  of  policy 
which  the  company  has  issued  anywhere.  Whether  they  have 
all  been  issued  in  California,  or  not,  I  do  not  know. 

TIll^:  COMMISSIONER.  If  that  is  the  case,  that  puts  me  to 
the  necessity  of  issuing  subpoenas  to  the  companies  to  bring  their 
books  here. 

MR.  McCUTCHEN.  I  do  not  think  you  will  find  that  neces- 
sary. The  statement  I  make  to  you  is,  that  this  bundle  of  poli- 
cies includes  every  form  employed  by  the  comiwny  in  its  business 
anywhere  since  July.  1880,  and  I  claim  that  there  is  not  a  policy 
in  tiiat  l)undle  which  does  not  com]>ly  with  Section  I.")'!  of  the 
Civil  C'ode  of  California. 

THE  COMMISSIONER.  By  reading  Section  150  of  the 
Civil  Code,  you  Avill  find  that,  in  order  to  forfeit  the  license  of  a 
company,  I  must  find  that  that  company  has  issued  policies  con- 
trary to  the  statute.  It  says:  "Every  contract  or  jjolicy  of  in- 
sula n.ce  hereafter  made  by  any  person  or  corporation  organized 
under  the  laws  of  this  State,  or  under  those  of  any  other  Sta^e 
or  country,  with  ami  ujwn  the  life  of  a  resident  of  this  State,  and 
delivered  within  the  State."  It  is  necessary.  I  suppose,  to  find 
out  ju.>t  what  policies  have  been  issued  by  your  company  in  the 
State.  Some  time  ago  I  sent  to  each  of  the  companies  doing 
business  in  this  State  for  a  list  of  the  policies  issued  by  tJiem  in 


110 

this  Staite.  I  understood  that  it  would  ineonvenierice  them  very 
much  to  bring  their  books  here,  and  so  I  waived  that.  At  the 
same  time,  mnless  the  counsel  for  the  several  companies  will  agree 
that  the  diflPerent  companies  have  used  the  forms  of  policies 
which  they  have  handed  to  me,  within  the  State  of  California, 
I  shall  have  to^  ask  the  companies  to  furnish  me  with  the  poli- 
cies which  have  been  used  in  this  State  since  the  year  1880. 

MR.  McCUTCHEN.  I  thi-nk  I  can  make  that  admission  on 
the  part  of  the  companies  I  represent. 

ME.  THOMAS.  I  think  I  can  make  that  admission  for  the 
compajiies  I  represent. 

MR.  McCUTCHEN.  My  theory  about  it  was  this,  that  it 
would  not  entail  amy  additional  labor  upon  you,  as  we  thought 
you  would  find  that  all  the  policies  in  that  bundle  contained  the 
same  generail  provision  in  i-elation  to  paid-up  insurance. 

THE  COMMISSIONEE.  Of  course  I  do  n'ot  know  what  I  am 
going  to  find  as  the  fact  m  this  matter,  but  it  would  be  absuxd 
for  me  to  undertake  an  inquiry  of  this  kind  if  I  did  not  find  out 
what  kind  of  policies  the  various  companies  have  issued  and  de- 
livered in'  the  State.  As  I  have  said  before,  I  sent  to  all  of  the 
companies  for  a.  complete  list  of  all  policies  used  in  the  State 
since  1880,  and  the  result  was  that  these  different  bundles  were 
given  to  me.  I  assumed  and  now  assume  from  that  that  the  at- 
torneys will  admit  that  they  have  delivered  policies  of  these  var- 
ious kinds  to  policy-holders  in  the  State  of  California,  without 
specifying  the  particular  persons  to  whom  the  various  policies 
have  been  issued. 

MR.  McCUTCHEN.  I  think  that,  so  far  as  the  two  companies 
I  represent  are  concerned,  I  am  Avilling  to  admit  that  the  general 
features  of  these  policies  which  you  find  in  the  bundle  handed 
you,  have  been  employed  in  policies  in  this  State. 

THE  COMMISSIONER.  I  do  not  want  any  of  you  gentlemen 
to  think  from  that  that  there  is  any  intimation  of  how  I  feel  upon 
the  subject.  I  simply  want  to  make  the  record  straight  with 
reference  to  what  I  take  to  be  the  admission  of  the  counsel  pres- 
ent. 

MR.  THOMAS.  I  Ivave  no  doubt  tliat  onr  companies  have  is- 
sued every  form  that  has  been  handed  you,  Mr.  Commissioner — 
about  ninety  in  number. 


Ill 


MR.  EANKIN.  I  do  not  think  that  is  correct  with  reference 
to  the  Xortluvestcrn  Mutual. 

Q.  Is  it,  Mr.  Smith?  That  is  to  say,  do  you  know  what  pol- 
icies were  sent  to  the  Commissioner  hy  the  Company? 

A.  Yes,  sir;  I  could  determine  that.  We  will  admit  that  we 
have  issued  all  of  the  forms  of  policies  that  were  sent  to  the  Com- 
missioner. We  should  have  done  so,  if  call  had  heen  made  for 
them;  if  we  have  not,  we  will  admit  that  we  have  done  so. 

THE  rO:MMISSIONEl?.  If  even  one  policy  of  any  particu- 
lar kind  were  issued,  that  would  be  the  same  as  if  a  hundred  or 
a  thousand  had  been  issued. 

MR.  RANKIX.  I  do  not  know  exactly  what  the  provisions 
of  all  these  various  policies  of  the  Northwestern  Mutual  are. 

TIIE  rOMillSSIONER.  The  various  policies  are  all  alx)ut 
the  same. 

MR.  LAXDERS.  The  policies  sent  out  by  tlie  Manhattan 
Life  Insurance  Company  were  accompanied  by  a  letter  of  which 
I  hiave  furni'shed  yon  a  co])y,  !Mr.  Commissioner,  and  which  I 
have  read  to  the  gentlemen  present,  stating  that  they  were  the 
forms  of  policy  generally  in  use  in  California. 

THE  COMMISSIONER.  All  T  want  is  an  admission  that 
the  various  po'licies  sent  to  me  by  the  different  Companies,  in 
response  to  my  request  for  such  as  has  been  used  in  California, 
have  been  used  in  California.  Is  that  understood  to  be  correct 
as  far  as  you\r  Company  is  concerned,  Judge  Rhodes? 

MR.  RHODES.     Yes. 

MR.  RAXKIX.  Mr.  Smith,  I  ask  you  again:  Does  this  Com- 
pany, the  X'orthwestern  Mutual,  issue  in  this  State,  or  has  it 
siiu-e  you  have  been  connected  with  it,  any  whole  life  policy 
which  does  not  contain  a  clause  exempting  it  from  forfeiture? 

A.     Xo.  sir. 

Q.     None  at  all? 

A.     Xo.  sir. 

Q.     What,  in  general  terms,  are  those  clauses? 

THE  CO:\IMlSSIONER.  Just  a  moment.  Let  me  ask  Mr. 
Smith  a  question. 

Q.  I  understand,  Mr.  Smith,  that  all  the  policies  which  your 
Company  have  issued  in  this  State  are  contained  in  this  bundle? 

A.     Yes,  sir. 


112 

Q.  And  what  the  clauses  are  can  he  determined  from  the 
clauses  themselves? 

A.     Yes,  sir. 

MR.  RANKIN.  I  was  going  to  have  Mr.  Smith  sipecify  those 
policies  which  have  been  issued  by  him  since  he  has  been  Agent 
here. 

THE  COMMISSIONER.  I  thought  that  was  settled.  For 
Mr.  Smith  to  say  that  he  has  complied  with  Section  450  of  the 
Civil  Code  would  not  be  anything  that  I  should  consider. 

MR.  THOMAS.  Brother  Rankin,  you  would  not  want  to 
have  ]\lr.  Smith's  oral  statement  as  to  what  actually  appears  in 
the  evidence  which  you  have  produced  in  writing,  would  you? 

MR.  RANKIN.  Of  course,  if  I  knew  just  what  these  various 
policies  contained,  I  could  tell  better  as  to  these  matters. 

THE  COM]\[ISSIONER.  The  head  Counsel  of  the  North- 
western Mutual  Life  Insurance  Company  sent  me  a  letter,  which 
is  a  part  of  the  records  of  the  ofRce,  accompanying  which  he  sent 
a  bundle  of  policies  which  he  wishes  to  use  as  evidence  before 
me.  I  have  admitted  those,  and  they  will  be  considered.  For 
Mr.  Smith  to  tell  what  the  policies  contained,  I  do  not  think 
is  right. 

MR.  RANKIN.  If  Mr.  Smith,  as  Agent  of  the  Company,  is 
willing  to  state  now  that  all  of  the  policies,  copies  of  which  have 
been  given  to  you,  Mr.  Commissioner,  have  been  issued  in  this 
State,  that  exempts  me  from  any  further  responsibility  as  At- 
torney of  the  Company. 

THE  COMMISSIONER.  That  is  the  fact,  is  it  not,  Mr. 
Smith? 

MR.  THOMAS.  He  sai^d  that  he  thought  that  would  be  so, 
and  he  would  admit  it  for  the  sake  of  the  argument. 

THE  COMMISSIONER.  If  that  is  not  so,  the  Attorney  for 
the  Company  has  not  delivered  to  me  the  proper  policies. 

THE  WITNESS.  If  we  have  not  issued  them  all,  we  could 
have  done  so.  V\'v  are  not  ])r{)hibited  frdiu  issuing  any  one  of 
these  policies. 

THE  COMMISSIONER.  The  only  way  you  could  deter- 
mine, if  there  is  any  doubt  about  it,  is  to  take  your  policy  books 
and  go  over  all  the  policies. 

THE  WITNESS.  I  could  run  right  through  the  hooks  and 
determine  that. 


MR.  lillOl^l'iS.  Q.  1  iinderstaiKl  that  your  admiseion  up  to 
this  point  is,  that  you  have  issued  them.  Perhajis  you  said  "for 
the  sake  of  the  argiunent."  I'.ut  I  understood  you  to  admit  that 
you  liad  issued  policies  in  every  one  of  these  forms  wliich  have 
been  furnished  to  the  Commissioner. 

A.  1  would  not  want  to  have  that  a  part  of  my  evidence,  that 
I  had  said  we  had  used  them  all.  I  meant  to  say,  and  think  I 
did  say,  that  for  the  sake  of  the  argument  it  might  be  conceded 
that  we  had  used  them  all. 

T"iIE  COMMISSIONER.  Q.  That  will  not  do.  It  must 
not  be  for  the  sake  of  argument,  but  for  the  purposes  of  this  case. 

A.     I  would  not  admit  that  we  have  issued  them  all. 

THE  COMMISSIONER.  Then,  Mr.  Smith,  I  am  afraid  I 
will  have  to  subpena  you  to  bring  your  books  here.  Under  the 
Code,  I  ask  you  to  bring  your  books  here  which  will  show  the 
tact  in  that  regard. 

A.  Would  ii  not  simplify  matters,  Mr.  Commissioner,  if  you 
find  that  certain  ones  axe  among  the  number  that  do  not  comply 
with  the  statute,  to  make  mc  testify  as  to  having  issued  them? 

THE  COMMISSIONER.  I  understand,  Mr.  Smith,  that  you 
are  testif3ang  in  this  case.  I  want  to  know  whether  or  not  the 
policies  which  have  been  handed  me  are  the  ones  which  have 
been  issued  by  your  Conipamy  in  the  State.  "Whether  they  comply 
with  Section  450  of  the  Civil  Code,  or  not,  is  another  question. 
I  want  to  get  the  record  in  proper  shape.  It  makes  no  difference 
with  regard  to  any  of  these  forms  of  uolicy  whether  you  have 
issued  a  hundred  policies  or  fifty  policies,  or  only  one  policy  of 
that  form. 

MR.  RANKIN.  Let  us  pass  that  inqurrv'  for  the  present. 
Mr.  Commissioner,  until  I  have  a  chance  to  consult  with  Mr. 
Smith.     I  will  ask  Mr.  Smith  some  further  questions. 

Q.  Mr.  Smith,  I  asked  you  a  little  while  ago  to  specify,  as 
near  as  you  can  now  from  memory,  the  various  kinds  of  full  life 
policies. 

A.     Any  policy  that  is  not  a  term  policy  is  a  whole  life  policy. 

Q.  I  will  (:^c\  at  the  inquiry  by  asking  you  more  specifically. 
Is  there  a  whole  life  policy  extant  called  an  "ordinary  life 
polio/'? 

A.     Yes.  sir. 


lU 


Q.     What  is  that? 

A.  That  is  a  policy  on  which  the  premiums  are  paid  as  long 
as  the  man  lives,  and  at  his  death  we  pay  his  estate  or  his  bene- 
ficiary named  in  the  policy  tlie  amount  specified  in  the  policy, 

Q.  Is  there  a  level  premium  paid  upon  that  policy  through- 
out the  life  of  the  man? 

A.  It  has  the  same  gross  premium  amnually,  but  it  may  be 
decreased  by  the  application  of  the  savings  of  the  Company  in 
dividends. 

Q.  Is  there  a  policy  which  is  known  as  a  "progressive  pay- 
ment life  policy"?  Let  me  explain  what  I  mean.  I  mean  a 
policy  in  wliich  the  premium  increases  as  the  man  grows  older, 
at  stated  times? 

A.  Ten  year  renewable  term  life  would  answer  that  descrip- 
tion. We  have  a  ten-year  term  life  and  a  ten-year  renewable  life. 
That  is  term  insurance. 

Q.     Is  the  ten-year  renewable  term  life  a  term  insurance  also? 

A.     Yes,  sir. 

Q.     That  is  not  a  whole  life  insurance? 

A.  No,  sir — not  at  the  specific  rate.  It  may  become  a  whole 
life  policy,  if  the  man  is  willing  to  pay  the  advanced  rate  of  pre- 
mium at  the  end  of  the  term. 

Q.  But  it  runs  from  the  first  year  to  the  tenth  and  then  ex- 
pires unless  he  wants  to  renew  it? 

A.  He  can  renew  it  upon  the  renewable  term  without  a 
medical  examination,  but  it  expires  if  he  does  not  renew  it. 

Q.     So  it  is  really  a  term  policy  for  ten  years? 

A.     Yes,  sir;  with  a  right  to  exercise  the  option  of  renewal. 

Q.  Is  there  such  a  policy  known  as  a  "yearly  renewable 
])olicy"? 

A.     Yes,  sir;  but  we  do  not  issue  it. 

Q.     That  is  a  term  policy,  is  it  not? 

A.     Yes,  sir;  that  would  be  an  annual  term  policy. 

Q.  Then  the  term  "whole  life  policy"  generally  applies  to 
what  is  called  "ordinary  life  insurance,"  does  it? 

A.     Yes,  sir. 

Q.     Ordinary  life? 

A.  Yes,  sir;  and  the  ordinary  life,  you  know,  may  be  paid  in 
terms — it  may  have  a  ten-year  term;  it  may  be  paid  in  ten  pay- 
ments, or  in  fifteen  payments,  or  in  twenty  payments,  and  still  it 


115 

is  a  whole  life  policy,  becomes  the  settlement  comes  only  at 
death. 

THE  COMMISSIONEK.  Q.  Mr.  Smith,  what  policies,  or 
what  forms  of  insurance  are  there  known  to  the  law,  that  would 
not  come  within  this  exception,  "tontine  insurance,  or  other 
term  or  paid-up  insurance"?  What  forms  of  insurance  are  there 
known  to  insurance  men  that  would  not  come  within  those 
terins? 

A.  Annual  distribution  policies  would  not  come  within  that 
term. 

Q.     A  whole  life  policy? 

A.  A  whole  life  policy  with  annual  distribution  would  not 
come  within  that  term. 

Q.     What  is  an  annual  distribntion  policy? 
A.     One  upon  which  dividends  are  paid  annually. 
Q.     A  whole  life  without  the  dividends  paid  annually  would 
not  be  term  insurance,  paid-up  insurance,  or  tontine  insurance? 
A.     No,  sir.     A  non-participating  policy  would  not  be  a  term 
policy,  or  tontine  policy,  or  paid-up  policy. 
MR.  RANKIN.     Q.     Are  there  any  others? 
A.     None  that  I  think  of. 

Q.  An  ordinary  life  would  not  be  included  within  those 
classes? 

A.  A  non-participating  policy,  or  any  form  of  participating 
policy,  including  ordinary  life,  would  not  come  under  the  head 
of  "term  policy,"  unless  in  case  of  the  participating  policy  it 
were  "tontined"  or  given  a  tontine  term  of  settlement. 

Q.     In  other  words,  nothing  but  an  ordinary  life  policy  would 
be  exempted  from  that? 
A.     That  is  it. 

Q.     But   an   ordinary  life   ix)licy  might   be  a  participating 
policy,  or  one  in  -which  the  parties  were  entitled  to  yearly  divi- 
dends to  be  applied  on  their  premiums? 
A.     Yes,  sir. 

Q.     On  the  various  forms  of  whole  life  policies;  but  it  would 
have  to  be  a  whole  life  policy? 
A.     Yes,  sir. 

THE    COMMISSIONER.     Q.     Then,  Mr.   Smith,  the  only 
forms  of  insurance  known  to  Insurance  men  are  whole  life,  term, 


IIG 

paid-up,  and  tontine,  and  tontine  insurance  is  one  form  of  term 
insurance? 

A.     By  the  reading  of  that  law,  the  only  forms  that  are — 

Q.  (Interrupting.)  Do  not  misunderstand  me.  I  want  to 
get  at  all  the  forms  of  insurance  known  throughout  the  insur- 
ance world,  and  not  with  reference  to  the  statute.  I  understand 
you  to  say  that  the  only  form  of  insu'rance  that  does  not  come 
within  the  exception  in  this  statute  is  "whole  life  insurance"? 

A.     Yes,  sir. 

Q.  Then  ii  uiusl  necessarily  be  that  the  only  forms  of  insur- 
ance known  to  the  insurance  world  and  to  actuaries  are  whole 
life, •tontine,  term,  and  paid-up.     Is  tliat  so? 

A.     You  make  a  distinction  between  tontine  and  term. 

Q.  If  tontine  insurance  is  term  insurance,  then  of  course  it 
is  just  the  same,  and  that  would  be  eliminated? 

A.  Yes,  sir.  Those  are  the  two  divisions  of  life  insurance — 
it  is  settled  at  death,  or  it  is  settled  at  the  end  of  a  term. 

ME.  EANKIN.  And  paid-up  insurance  may  be  either  for  a 
term  or  for  life,  may  it  not? 

A.     Yes,  sir. 

Q.  So  a  paid-up  policy  is  not  necessarily  a  classification  of 
policies  at  all,  but  simply  depends  upon  the  amount  of  the  pre- 
mium and  the  length  of  the  term  for  which  it  is  paid? 

A.     Yes,  sir. 

MR.  RHODES.  Q.  Mr.  Smith,  suppose  I  should  go  into 
youT  office  and  say  to  you,  "I  want  a  term  policy  for  ten  thou- 
sand dollars  for  ten  years."  Would  you  send  your  young  man 
out  to  get  a  tontine  blank? 

A.  No,  sir.  The  difficulty  in  your  asking  for  that  insurance 
is  your  lack  of  knowledge  of  the  business.  You  would  be  sur- 
prised at  the  requests  we  have  for  insurance,  and  how  little 
they  mean  to  us  until  we  analyze  them  and  talk  with  the  men, 
and  find  out  what  their  ideas  are.  With  the  request  as  you  give 
it,  you  might  mean  a  tontine  policy,  or  you  might  mean  a  ten- 
year  renewable  policy,  or  you  might  mean  a  ten-payment  life 
policy. 

Q.  Very  well.  Suppose  a  gentleman  comes  into  your  office, 
and  you  were  talking  with  him,  and  he  should  say  to  you,  being 
an  insurance  agent,  "I  have  issued  ten  term  policies  during  the 


117 

last  week."     Would   you   inquire   (jf   hiin    how    many   of   those 
policies  were  too  tine  policies? 

A.     Would  I  ask  him? 

il     Yes. 

A.     No,  sir. 

Q.  You  would  not  undcTstaod  him  to  mean  tontin«  policies 
at  all,  would  you? 

A.  In  Insurance  circles  we  have  our  distinctions  between 
policies,  and  our  names  for  the  different  policies.  If  he  were 
to  say  he  had  issued  ten  term  policies,  that  would  not  signify 
anything.  You  put  it  in  such  a  shape  that  it  would  signify 
nothing.  If  I  am  talking  with  Mr.  Landers,  and  he  tells  me  he 
has  written  so  much  insurance,  I  know  what  he  is  talking  about. 
But  when  the  legislators  legislate,  as  they  have  done  here,  the 
language  is  perfectly  clear  as  to  what  the  thing  meant,  and  what 
they  were  legislating  for.  In  this  section  of  the  Code  they 
except  tontine  or  other  term  or  paid-up  insurance. 

Q.  Certainly  a  great  many  men  who  draw  statutes  are  not 
competent  men.  What  1  was  trying  to  get  at  in  my  questions  to 
you  was  the  meaning  of  the  term.  It  may  be  that  he  Commis- 
sioner will  hold  that  in  an  Act  of  the  Legislature,  where  terms  of 
trade  or  art  are  used,  they  are  used  in  the  sense  in  which  they 
are  understood  and  defined  in  that  art  or  trade.  In  this  case  it 
is  proper,  then,  for  me  to  ask  you  whether  or  not  the  gentleman 
who  said  that  his  Company  had  written  ten  term  policies  during 
the  week  would  convey  to  you  the  meaning  that  he  had  issued 
tontine  policies — that  among  those  ten  he  included  a  single  case 
of  tontine  insurance? 

A,     I  would  not  necessarily  understand  that,  no,  sir. 

Q.  Then  when  you  use  the  expression  ''term  insurance" 
among  Insurance  men,  it  has  a  meaning  which  does  not  include 
tontine  insurance,  and  which  does  not  inchide  endowment  insur- 
ance, or  anything  else  of  that  kind? 

A.     No,  sir;  that  is  not  true. 

Q.  What  would  the  words  "term  insurance"  include  if  you 
were  talking  wuth  an  insurance  man  in  relation  to  the  insurance 
business? 

A.     It  would  depend  altogether  upon  how  technical  we  were 

in  the  matter. 

Q.     What  would  be  the  ordinary  signification  of  the  term? 


118 

A.      1 1  might  mean  a  great  nuuiy  tilings. 

Q.  Not  ''might" — that  is  not  what  I  want.  When  you  speak 
of  a  term  policy  and  a  full  paid  policy,  they  are  different  things 
in  insurance,  are  they  not? 

A.     Yes,  sir. 

Q.     But  the  term  policy  is  fully  paid? 

A.  Not  in  the  beginniiig.  It  is  fully  settled  at  the  end  of 
tlie  term,  yes. 

Q.  I  am  getting  at  the  meaning  of  these  terms  as  they  are 
used  among  Insurance  men.  If  yoii  want  to  talk  with  an  Insur- 
ance man  about  tontine  insurance,  you  would  say  tontine  insur- 
ance, and  not  begin  talking  with  him  about  term  insurance, 
would  you? 

A.  We  would  shorten  our  conversation  very  much  by  put- 
ting in  tlu'  full  tvarae.  But  if  1  am  talking  to  a  man  about  a  ton- 
tine policy,  1  am  talking  to  liim  about  a  term  policy. 

Q.  I  am  asking  for  words,  not  meaning.  The  words  you 
would  use  would  be  "term  policy'"  and  not  "tontine  policy," 
would  they  not? 

A.     What  is  your  question? 

Q.  The  term  you  would  use,  in  speaking  to  insurance  friend 
about  insurance  matters  Avould  be  "term  policy"  if  you  wanted 
to  talk  about  a  term  policy.  You  would  not  use  the  term  "ton- 
ti'ne  policy,"  and  vice  versa? 

'  A.  1  might  designate  it  for  the  moment  as  a  tontine  policy, 
but  before  I  had  got  through  explaining  about  it, I  would  tell  him 
that  it  was  a  term  policy  and  had  a  definite  term  of  ten  years, 
or  fifteen  years,  or  twenty  years.  I  might  designate  or  shorten 
it,  as  we  do  in  speaking  of  our  Companies,  for  instance.  A  man 
combes  to  me  and  asks  what  Company  I  represent.  If  he  is  an 
Insurance  man,  I  would  say,  "The  Northwestern."  If  I  were 
talking  to  you,  I  would  say,  "The  Northwestern  Mutual  Life  In- 
surance Company."  If  I  met  a  man  ordinarily  down  on  the 
street,  and  in  answer  to  his  question  told  him  that  I  represented 
the  Northwestern,  his  question  being  with  reference  to  my  busi- 
ness, he  would  not  know  what  I  meant,  whether  it  was  the 
Northwestern  Railroad,  or  the  Northwestern  Fire  Insurance 
(.'ompany,  or  what. 

Q.     I  am  trying  to  get  from  you  the  meaning  of  those  terms  as 
they  are  used  among  Insurance  men. 


Il!t 


A.  In  so  speaking,  we  shorten  it  down;  we  do  not  make  it 
specific.  For  instance,  we  talk  about  a  renewable  term.  ^Pliat 
is,  to  desiignate  a  particular  policy  that  we  write.  We  talk  about 
a  tontine  with  a  ten-year  term,  or  with  a  fifteen-year  term,  or 
with  a  twenty-year  term.  Or,  we  talk  about  a  policy  with  a 
twettty-year  distribution  period.  That  is  a  tenn  policy,  of 
course. 

MJ{.  McCUTCHEN.  Q.  Have  you  examined  the  works 
written  by  actuaries  on  life  insurance? 

A.     I  have. 

Q.  Do  you  know  any  actuary  who  defines  tontine  insurance 
as  term  insuTance,  or  who  says  that  tontine  insurance  is  term 
insurance? 

A.  I  don't  know  that  I  know  of  any  actuary  who  has  said  so, 
but  any  actuary  would  say  so. 

Q.  Do  you  know  any  actuary  who  has  defined  term  insurance 
as  other  than  insurance  for  a  specified  terra,  the  contract  being  to 
y)ay  the  insurance  in  tlie  event  that  insured  dies  within  that 
specified  time? 

A.  That  applies  to  tontine  insurance  as  well  as  to  any  other 
— if  we  guarantee  to  pay  the  insurance  if  it  falls  due  ^\^thin  the 
term. 

i}.  Do  you  understand  that  to  be  tontine  insurance — that  if  a 
man  dies  within  the  tontine  period,  he  is  to  be  paid? 

A.     His  estate  is  to  be  piiid  the  face  of  the  policy,  yes.  sir. 

Q.     On  a  tontine  policy? 

A.     On  a  tontine  policy,  yes,  six. 

Q.  What  was  tontine  insurance  a.=  first  known  to  the  insur- 
ance world? 

A.  Tontine  is  not  a  plan  of  insurance  at  all.  It  is  only  a 
method  of  distributing  the  surplus  or  di\ndends. 

Q.     What  was  tontine  insurance  as  originally  understood? 

A.  Tontine  insurance  was  originated  for  the  purpose  of  mak- 
ing pohcics  settled  at  a  given  period,  and  to  give  the  survicors 
at  the  end  of  that  period  benefit  of  the  dividend  accumulations 
during  the  period  from  deaths  and  lapses. 

Q.  How  did  the  man  who  died  before  the  expiration  of  that 
period  benefit  by  that  method,  as  you  call  it? 

A.     His  estate  benefited  by  it. 

Q.     To  what  extent? 


120 

A.     To  the  extent  of  the  face  of  the  policy. 
Q.     He  did  not  have  any  interest  in  the  reserve  or  accumula- 
tions? 

A.     No,  sir;  his  estate  had  no  interest  in  it. 
■Q,     Do  you  know  any  form  of  policy  which  provides  that,  in 
the  event  that  the  insured  shall  not  die  within  a  certain  specified 
time,  he  shall  not  receive  anything  from  the  Company? 
A.     Yes,  sir. 

Q.     What  do  you  call  that? 
A.     That  is  the  simplest  form  of  term  insurance. 
Q.     Is  not  that  the  only  term  policy  known  to  insurance 
writers? 
A.     I  have  said  several  times  it  is  not. 

Q.     Will  you  tell  us  any  one  author  who  gives  any  other  defi- 
nition of  "term  insurance"  than  that? 

A.     Any    autho-r   who    explains  the  semi-tontine  or  tontine 
methods  of  insurance. 
Q.     For  instance? 

A.  I  cannot  just  now  recall.  I  try  to  read  all  that  comes  out 
on  insurance,  but  I  cannot  recall  at  this  particular  time  any 
author  that  has  specifically  said  that  this  is  a  term  policy.  But 
a  knowledge  of  life  insurance  teaches  that  it  is  a  term  policy 
when  it  runs  for  a  given  number  of  years.  It  certainly  is  not  a 
whole  life  policy.     It  is  for  a  definite  term. 

Q.  Your  information  as  to  a  terra  policy,  then,  leads  you  to 
say  that  it  is  a  policy  upon  which  premiums  are  to  be  paid  for  a 
certain  number  of  years? 

A.  Yes,  sir;  for  a  certain  number  of  years  designated,  and 
then  a  settlement  is  had  at  the  end  of  the  given  term. 

Q.  Take  a  policy  which  is  issued  upon  the  life  of  a  man,  to  be 
paid  in  the  event  that  he  dies  within  a  given  period,  and  he  does 
not  die  within  that  period.  What  settlement  is  made  with  him 
at  the  end  of  the  period? 

A.     There  is  no  settlement  made  with  him  in  that  case. 
Q.     There  is  no  settlement  made? 
A.     No,  sir. 

ME.  RANKIN.     Q.     That  is  the  end  of  the  policy? 
A.     That  is  the  end  of  the  policy. 

MR.  McCUTCHEN.  Mr.  Smith,  you  were  not  present  at 
the  session  yesterday? 


121 


A.     No,  sir. 

Q.  Are  you  aware  of  the  fact  thai  every  Agent  here  present 
gave  a  definition  of  the  terms  different  from  the  definition  you 
have  given? 

THE  COMMISSIONER.  Mr.  McCutchen,  1  do  not  think 
that  ie  right.     I  do  not  want  any  such  testimony. 

MR.  McCUTCHEN.  I  simply  want  to  present  the  fact  to 
Mr.  Smith's  mind. 

THE  COMMISSIONER.  Mr.  Smith  is  a  perfectly  compe- 
tent Insurance  main,  and  I  do  not  think  it  would  make  any  differ- 
ence whatever  in  his  testimony. 

MR.  RANKIN.  It  does  not  make  any  difference,  Mr.  Com- 
missioner.    I  was  here,  and  I  know  what  the  testimony  was. 

THE  COMIMISSIONER.  It  is  not  a  fair  question.  I  know 
what  the  other  witnesses  have  testified  to,  and  I  know  what  Mr. 
Smith  has  testified  to. 

MR.  McCUTCHEN.  I  thought  it  might  change  his  opinion 
if  he  knew  that  all  the  other  gentlemen  differed  from  him  in 
opinion. 

THE  (COMMISSIONER.  I  do  not  want  his  opinion  shaken 
in  that  way. 

MR.  McCUTCHEN.  I  bow  to  the  judgment  of  the  Commis- 
sioner, but  I  must  say  T  do  not  see  any  impropriety  or  error  of 
judgment  in  the  question. 

THE  COMMISSIONER.  I  think  it  is  unfair  to  endeavor  to 
shake  a  man's  opinion  in  that  way. 

MR.  THOMAS.  If  I  give  an  opinion  upon  a  proposition  in 
law,  and  then  I  hear  that  fifteen  or  twenty  members  of  the  bar 
have  expressed  a  different  opinion,  it  would  certainly  affect  my 
opinion  somewhat. 

MR.  RANKIX.  The  witnesses  who  testified  yesterday  did 
not  have  their  attention  directed  to  the  matter  in  the  same  way 
in  which  .Mr.  Sniitli  has  had  his. 

THE  COMMISSIONER.  I  hope  the  question  will  be  unth- 
drawn. 

THE  WITNESS.  I  will  say  right  now,  gentlemen,  tliat  if 
all  the  Insurance  men  in  this  State  were  to  come  to  me  and 
express  a  different  opinion  it  would  not  change  my  view  of  the 
matter  in  the  least.  I  know  that  a  policy  which  is  wTitten  for 
a  term  of  years  in  term  insurance,  and  I  should  call  it  term  insur- 


190 

-1  4M  Arf 

ance  whether  they  called  it  so  or  not.  Moreover,  the  statute 
makes  it  so.     It  says  "tontioie  or  other  term  insurance." 

MR.  McAllister.  The  statute  says  "tontine,  or  other 
term  or  paid-up  insurance."*  You  quote  it  as  saying  "tontine  or 
other  term  insuriance.""    That  is  n-nt  a  correct  interpretation  of  it. 

MR.  RANKIN.  There  is  a  difference  of  opinion  between 
lawyers  as  to  what  that  means.  You  gentlemen  will  understand 
this:  that  you  have  liad  your  consultations  together,  and  you 
have  agreed  upon  your  theory  of  the  matter.  I  have  not  been  at 
any  of  your  cnn.'ultaitioQis.  I  liave  a  tlieory.  aiKl  my  client  has 
one  also,  and  we  are  trying  to  see  what  this  statute  means,  and 
to  show  it,  and  I  believe  we  are  right. 

THE  COMMISSIONER.  Q.  I  understand  you,  Mr.  Smith, 
to  say  that  tontine  insurance  is  where  a  number  of  people,  say 
ten  or  twenty,  get  together  and  pay  their  premiums,  and  there  is 
no  payment  made  to  anybody  until  they  all  die  except  one,  and 
that  then  the  survivor  takes  it.     That  is  the  fact,  is  it? 

A.     We  have  not  any  such  form  of  insurance. 

Q.     I  understood  that  to  be  the  definition  of  "tontine." 

A.  If  you  m^ean  that  a  tontine  policy  is  one  in  which  only 
the  last  survivor  of  a  class  gets  everything,  that  is  incorrect.  No 
such  policy  was  ever  issued  by  any  Company. 

Q.     You  limit  it,  absolutely,  then — the  original  tontine? 

A.  We  limit  it  absolutely  to  a  given  term,  say  ten,  or  fifteen, 
or  twenty'  years.  And  at  the  end  of  the  period  all  survivors 
share  in  dividend  or  accumulations. 

Q.  You  have  never  known  of  a  tontine  policy  without  a 
term  of  so  many  years? 

A.     No,  sir, 

MR.  RANKIN.  T  understood  that  to  be  so  yesterday.  If 
you  can  produce  any  policy  embodying  the  plan  originated  in 
the  fertile  brain  of  Tonti,  giving  the  right  to  all  that  has  been 
paid  in  to  the  survivor,  then  it  may  he  conceded  tliat  that  is  ton- 
tine insurance. 

THE  COMMISSIONER.  I  understood  yesterday  that  ton- 
tine originally  was  where  a  definite  number  of  people  were  taken 
into  a  class,  each  paying  a  given  amount  of  premium,  and  the 
survivor  took  all  the  profits,  without  limitation  as  to  years. 

MR.  RANKIN.  That  may  have  been  the  meaning  a  hundred 
years  ago,  when  tontine  was  first  invented. 


128 


Ml?.  RIIUiJES.  I  thiaik  it  was  siig^^ested  hy  Tonti  that  there 
might  be  several  periods,  as,  for  instance,  ten-year  periods, 
fifteen-year  periods,  and  twenty-year  periods.  Then  all  those 
who  survived  twernty  years  in  the  tAventy-year  class  would  be 
entitled  to  divide  the  accumulations  of  tontine,  and  all  those 
who  survived  for  fifteen  years  in  the  fifteen-year  class  would  be 
entitled  to  share  in  the  accumulations  in  that  class,  and  the 
balance  went  to  the  State. 

THE  COM^riSSIONER.  I  understood  that  tontine  insur- 
ance was  originally  as  1  have  defined  it. 

MR.  THOMAS.  I  think  the  original  plan  suggested  by 
Tonti  gave  to  the  last  sun^ivor  of  the  class  tJie  full  income  of  the 
fund  accumulated,  and  then  the  Stat<j  took  the  whole  thing  after 
the  death  of  the  last  survivor.  It  is  my  understanding  that 
Tonti  was  a  representative  of  the  government,  and  that  he  got 
up  this  scheme  for  the  purjDOse  of  getting  a  government. 

MR.  EANKIN.     Do  you  claim  that  there  is  any  such  insur- 
ance in  vogue  in  the  United  States,  or  anywhere,  at  tliis  day? 
MR.  THOMAS.     I  do  not  think  there  is  any  such  claim. 
MR.  McCUTCHEN.     Q.     Is  it  your  claim,  Mr.  Smith,  that 
there  was  no  tontine  insurance  when  this  Act  was  adopted? 

A.  I  don't  know  whether  there  was  or  not,  but  I  doubt  very 
seriously  whether  there  was  any,  as  you  seem  to  claim,  originally 
conceived  by  Tonti,  in  which  the  last  survivor  of  a  class  gets 
everything. 

Q.  I  am  not  talking  about  that,  but  was  there  any  tontine 
insurance  during  that  time? 

A.  Within  the  definition  of  tontine  inc^uranc-e  by  Tonti,  as 
originally  made,  there  was  none  in  the  United  States,  or  any 
other  place. 

MR.  McCUTCHEN.  I  am  not  talking  abouL  an}  particular 
definition  of  tontine  insurance.  The  witness  does  not  seem  to 
understand  me. 

MR.  LANDERS.  Q.  Mr.  Smith,  for  the  purpose  of  clarify- 
ing your  replies,  which  seem  a  little  obscure  to  the  gentlemen 
present,  upon  the  subject  of  tontine  insurance,  let  me  ask  you  a 
question  or  two.  You  say  that  tontine  insurance  is  tenu  in- 
surance? 

A.     Yes,  sir. 


124 

MR.  RANKIN.  Mr.  Smith  said  it  was  one  species  of  term 
insurance. 

MK.  LANDERS.  Q.  Suppose,  Mr.  Smith,  an  applicant 
should  call  at  your  office,  and  he  should  wamt  an  ordinary  life 
policy  with  the  tontine  feature  added,  of  ten  or  fifteen  or  twenty 
years — an  ordinary  life  premium.  Would  you  consider  that 
term  insuraince,  or  would  you  consider  it  only  a  feature  attached 
to  that  policy? 

A.     It  is  a  feature  of  our  policy. 

Q.     Then  it  is  not  term  insurance,  but  is  tontine  insurance? 

A.  Certainly  it  is  term  insurance.  I  would  immediately 
ask  him,  "What  term  do  you  want?" 

MR.  RANKIN.     Is  that  so,  Mr.  Landers? 

MR.  LANDERS.  That  is  so,  Mr.  Rankin.  I  am  talking  now 
from  experience.  I  am  simply  clarifying  Mr.  Smith's  testimony 
in  matters  that  are  obscure, 

THE  COMMISSIONER.  Do  I  understand,  Mr.  Landers, 
that  you  agree  with  Mr.  Smith  in  the  statement  he  has  made? 

MR.  LANDERS.     No,  sir;  I  do  not. 

MR.  RANKIN.     With  the  last  statement  made  by  Mr.  Smith? 

MR.  LANDI']RS.  No,  sir;  I  don't  agree  with  him  because 
I  understand  Mr.  Smith  to  say  that  tontine  insurance  is  term 
insurance.  Tontine  insurance  is  not  term  inBurance,  in  the 
general  acceptation  of  the  words;  it  simply  a  policy  under 
which  the  dividends  are  deferred,  and  then  the  policy  continues 
during  its  term.  Let  us  take  an  instance  of  a  young  man  at  the 
^ge  of  thirty — 

MR.  RHODES.     Myself,  for  instance. 

MR.  LANDERS.  Yes,  take  Judge  Rhodes.  He  makes  an 
application  to  Mr.  Smith  for  an  ordinary  life  policy.  Mr.  Smith 
will  .-ay  to  him,  "Well,  Judge,  how  do  you  want  your  dividends 
payable?  You  had  better  wait;  you  had  better  allow  us  to 
accumulate  your  dividends  for  you."  The  Judge  would  reply, 
■"Is  there  any  advantage  in  that?"  Mr.  Smith  would  say,  "Yes, 
there  is  an  advantage  in  that,  because  you  come  in  under  a  sys- 
tem that  we  have  adopted  that  is  known  as  the  tontine  system. 
It  is  a  feature  that  will  add  to  the  value  of  your  contract — simply 
a  feature  that  is  added  to  your  contract."  Then  the  Judge  would 
say,  "How  does  this  feature  run?"  "Well,"  replies  Mr.  Smith, 
"if  you  leave  your  dividends  with  us  for  ten  years  the  results  will 


125 

1)6  SO  much,  but  if  you  leave  them  for  fifteen  years  years,  by  the 
accession  of  interest  and  the  compounding  of  interest,  the  result 
will  be  so  much  greaitor.  If  you  let  the  dividends  run  for  twenty 
years,  the  amount  will  be  still  greater,  owing  to  the  increase  of 
the  interest  and  the  accumulations  during  the  period."  At  the 
end  of  the  period  the  Judge  calls  in  for  the  settlement  of  his 
dividends.  His  policy  still  continues.  It  is  the  ordinary  life 
policy.  It  is  in  no  sense  a  term  policy,  but  is  merely  a  feature 
that  is  added  to  that  po-licy.     Is  that  not  correct,  Mr.  Smith? 

A.  No,  sir.  It  is  a  term  policy.  It  i=  adding  the  feature  of 
a  term  to  that  policy. 

MR.  THOMAS.  But  the  distribution  of  the  dividends  is  a 
foDii,  and  the  policy  conitinues  in  force? 

A.  The  policy  becomes  but  the  name,  then,  and  we  make  a 
term  policy  of  it. 

MR.  LANDERS.  You  have  been  enitertained  here,  Mr.  Com- 
missioner, with  reference  to  tontine  insurance  in  Europe.  The 
origin  of  tontine  insurance  in  this  country — 

THE  COMMISSIONER.  Mr.  Landers,  Mr.  Smith  is  now 
giving  his  testimony.  I  think  we  ought  to  hear  him  through 
before  we  proceed  with  anything  else. 

MR.  RANKIN.  If  Mr.  Landers  wants  to  testify.  I  wouJd  be 
glad  to  have  him  do  so. 

MR.  LANDERS.  I  am  not  testifying.  I  am  simply  calling 
Mr.  Smith's  attention  to  certain  facts,  because  I  think  he  will 
agree  with  me,  when  he  examines  his  policies  and  contracts  later 
on,  that  a  tontine  policy  is  in  no  sense  a  term  policy.  Tontine  is 
simply  a  feature  added  to  a  policy,  and  it  does  not  make  of  it  a 
term  policy. 

Till']  COMMISSIONER.  You  have  no  Counsel  here.  Mr. 
Landers,  and  you  may  argue  this  matter  in  place  of  counsel,  if 
you  so  desire.     Just  let  us  get  through  with  the  testimony  first. 

MR.  McCUTCHEN.  There  are  one  or  two  questions  that  I 
would  like  to  ask  Mr.  Smith. 

MR.  SMITH.  May  1  make  a  suggestion  with  reference  to 
tontine,  Mr.  Commissioner? 

T'HE  COMMISSIONER.  Certainly.  We  do>ire  to  hear  from 
you  fully. 

Mr.  smith.  There  seems  to  be  a  good  deal  of  myth  about 
this  man  Tonti.    Some  sav  his  scheme  was  a  government  scheme, 


126 

and  some  say  it  was  a  scheme  to  work  in  his  vineyard.  I  have 
seen  several  statements  purporting  to  be  the  truth  regarding  the 
proposition  that  it  came  from  a  man  by  the  name  of  Tonti.  One 
is  that  he  had  a  vineyard.  He  had  a  good  deal  of  trouble  with 
his  help,  and  he  started  this  scheme:  He  said  to  himself,  "In- 
stead of  paying  my  men  their  full  wages,  I  will  pay  them  a  dollar 
a  day,  and  we  will  put  up  the  balance,  a  quarter  of  a  dollar,  into  a 
fund,  and  the  men  who  .stay  with  me  until  the  end  of  the  season 
shall  have  the  benefit  of  the  division  of  that  fund."  That  seems 
to  me  a  very  pretty  solution  of  ton'tine.  But  there  have  been 
variouis  statements  made  with  reference  to  its  origin,  and  there 
seems  to  be  now  some  doubt  as  to  what  was  the  fact. 

MR.  THOMAS.  Tonti  must  have  lived  in  Fresno,  according 
to  this  story  of  Mr.  Smith's. 

MR.  SMITH.  If  I  may  be  allowed  to  state  the  distinction 
between  the  old  full  tontine  and  what  we  are  pleased  to  call  the 
semi-tontine,  or  free  tontine,  I  will  do  so.  The  New  York  Life, 
I  will  say  right  here,  call  it  free  tontine,  I  believe,  or  is  it  the 
Equitable  that  gives  it  that  name? 

MR.  McCUTCHEN.     It  is  the  Equitable. 

MR.  SMITH.  We  call  it  the  somi-tontine,  and  the  Mutual 
Life  calls  it  the  "distribution  period,"  but  they  are  all  identically 
the  same  contract,  so  far  as  the  law  is  concerned.  I  have  been 
asked  why  we  call  one  policy  by  one  name  and  another  Company 
calls  it  something  else.  It  is  because,  in  designating  policies,  we 
fall  into  the  habit  of  calling  them  certain  names.  The  old, 
original  tontine  policy  had  the  same  terms  that  we  have  in  our 
tontine  policies  to-day,  ten-year  terms,  fifteen-year  terms,  and 
twenty-year  terms.  The  understanding,  however,  was  that  if  a 
man  died,  his  estate  got  the  face  of  the  policy  for  which  he  was 
insured.  If  he  had  a  twenty-year  term  policy,  and  he  lapsed  on 
the  nineteenth  year,  he  lost  it  all,  and  it  went  into  the  fund  to 
be  divided  among  the  survivors  at  the  end  of  that  period;  not 
to  the  man  who  lived  the  longest,  but  to  the  men  who  lived  and 
continued  their  payments  during  the  twenty-year  period.  Semi- 
tontine  insurance,  as  we  may  choose  to  call  it,  has  the  same  terms 
exactly  in  that  regard — the  man  who  dies  before  the  expiration 
of  the  tontine  period  gets  his  insurance  the  same  as  he  would 
under  a  tontine  policy,  but  the  man  who  lapses  does  not  lose  all, 
but  gets  paid-up  value  for  the  reserve  apportioned  to  his  policy. 


27 


whereas  under  tlie  old  tontine  lie  f^ot  ni>  vhIuo — his  entire  con- 
tribution went  to  the  surplus  fund. 

MR.  RANKIN.     (.}.     Hut  so  far  as  the  reserve  ie  concerned — 

A.  So  far  a.s  the  reserve  is  concerned,  the  policies  are  the 
same.  In  either  event  it  is  a  term  jiolicy,  has  the  same  term, 
and  has  the  same  characteristics  as  the  forfeiture,  only  differing 
in  the  amount  of  the  forfeiture. 

THE  COMMISSIONER.  Q.  Take  the  case  given  by  Judge 
Rhodes,  where  a  man  comes  in  and  asks  for  a  ten-year  tontine 
or  semi-to'ntine  policy,  as  you  call  it.  At  the  end  of  ten  years, 
what  becomes  of  that  policy? 

A.  That  policy  may  provide  for  a  continuance  in  different 
ways. 

Q.     But  what  ordinarily  happe'ris  at  the  end  of  ten  years? 

A.  The  insured  ordinarily  comes  in  and  settles,  taking  the 
cash  value  of  the  policy. 

Q.     Their  cash  is  how  much? 

A.     The  sum  of  the  reserve  and  surplus  accumulations. 

Q.  You  do  not  issue  a  policy  originally  guaranteeing  to  pay 
the  man  so  much  at  the  end  of  that  time? 

A.  We  guarantee  the  reserve  to  be  so  many  dollars;  the  earn- 
ings we  cannot  tell  until  the  end  of  the  term. 

MR.  RANKIN.  Q.  Is  an  endowment  policy,  Mr.  Smith, 
any  such  policy  as  you  have  just  spoken  of? 

A.  No,  sir.  It  is  a  different  proposition;  it  may  be  tontine, 
or  have  annual  dividends.  But  at  the  end  of  the  term,  in  the 
case  of  an  endowment  policy,  we  settle  with  the  insured  defi- 
nitely. 

Q.  He  has  but  one  option  in  the  case  of  an  endowment  policy 
at  the  end  of  the  term? 

A.     He  ivs  paid  the  cash  at  the  end  of  the  term. 

il     And  that  is  the  end  of  it? 

A.     Yes,  sir;   that  is  the  end  of  it. 

MR.  McCUTCHEN.  Q.  Mr.  Smith,  how  are  the  premiums 
on  ordinary  life  policies  paid? 

A.     Annually,  semi-annually,  and  (|uarterly. 

Q.     Is  that  a  term  policy? 

A.     An  ordinary  life  policy  is  not  a  term  policy. 

Q.     Why  not?  " 


128 

"A.  Because  it  runs  for  an  indefinite  period — until  the  death 
of  the  insured. 

Q.  Because  be  is  required  to  pay  premiums  for  an  indefinite 
length  of  time? 

A.  No,  sir.  That  is  not  the  distinction.  He  might  be  re- 
quired to  pay  but  ten,  fifteen,  or  twenty  premiums,  and  yet  it 
would  be  ordinary  life  insurance,  because  it  terminates  when  he 
dies. 

Q.  If  he  is  only  required  to  pay  premiums  on  an  ordinary  life 
policy  for  a  given  number  of  years,  why  is  not  that  term  insur- 
ance within  your  definition? 

A.  Because  there  is  no  specific  term  at  the  end  of  which  we 
settle  with  him.     Settlement  is  made  at  his  death. 

Q.     That  is,  you  do  not  pay  the  policy  until  his  death? 

A.     We  do  not  pay  the  policy  until  his  death. 

Q.  How,  then,  is  a  tontine  policy  term  insurance  to  a  man 
who  dies  before  the  expiration  of  the  period? 

A.  Because,  if  he  had  lived  to  the  end  of  the  period  be  could 
have  had  a  settlement,  sharing  in  tontine  accumulations. 

Q.  He  did  not  get  term  insurance.  Was  he  not  bound  to  live 
beyond  a  certain  term  to  get  the  reserve? 

A.     Yes,  sir;  to  get  the  full  reserve  specified  in  the  policy. 

Q.  In  the  one  case,  if  a  man  dies  within  a  specified  term,  his 
representatives  get  the  insurance  ? 

A.     Yes,  sir. 

Q.     If  he  lives  beyond  that  term,  they  get  nothing? 

A.  They  may  get  nothing,  or  they  may  get  something,  ac- 
cording to  the  kind  of  term  policy  which  he  holds. 

Q.  Is  there  not  a  form  of  term  insurance  under  which  a  man 
gets  nothing  if  he  survives  the  term? 

A.     Yes,  sir. 

Q.  In  the  other  case  he  will  not  get  anything  unless  he  does 
survive  that  period? 

A.  Oh,  no.  There  is  no  policy  issued  but  that  the  repre- 
sentatives of  a  man  will  get  the  face  of  the  policy  when  he  dies, 
if  it  be  in  force. 

Q.  I  mean,  so  far  as  the  reserve  is  concerned.  In  tontine 
insurance,  they  get  no  part  of  the  reserve  unless  the  insured 
lives  beyond  that  period? 

A.     Certainly,  his  beneficiaries  get  all  the  reserve,  and  more. 


12!J 

too — the  reserve  and  the  portion  due  from  ihe  mortality  element. 

Q.     What  is  tonti'ne.  then,  according  to  your  idea? 

A.  It  is  only  a  period  at  the  end  of  which  the  insured  may 
get  a  cash  settlement  or  readjustment  of  liis  policy.  We  make 
a  term  as  a  part  of  his  policy,  at  the  end  of  which  term  we  give 
him  a  settlement. 

Q.  Suppose  he  does  not  live  UTiiil  the  end  of  the  term. 
What  does  he  get  then? 

A.  One  of  the  terms  of  the  policy  is  that  the  man's  estate 
gets  the  insurance  when  he  dies. 

Q.     But  does  he  get  any  part  of  the  reserves  and  the  profits? 

A.  The  reserve  on  that  policy  is  the  part  that  the  company 
has  held  towards  meeting  its  guarantees — ^if  you  want  to  go  into 
this  technically,  I  will  tell  what  becomes  of  the  reserve. 

MR.  THOMAS.  Q.  If  he  dies  before  the  expiration  of  that 
tontine  period? 

A.     Yes,  sir. 

MR.  McCUTCHEN.  Q.  If  he  dies  before  the  expiration  of 
that  period,  he  gets  that  reserve,  does  he? 

A.  Yes,  sir;  his  estate  does.  As  I  answered  Mr.  Landers  a 
few  moments  ago,  a  tontine  period  is  but  the  fixing  of  a  term  at 
the  end  of  which  a  certain  settlement  is  made  on  any  policy  of 
that  character  which  we  issue. 

Q.  But  tontine  insurance,  under  that,  is  not  insurance  for  a 
term,  is  it;  it  is  insurance  for  life,  is  it  not? 

A.     Not  necessarily. 

THE  COMMISSIONER.  That  is  what  I  asked  you,  if  the 
policy  absolutely  lapses  at  the  end  of  the  term.  In  other  words, 
as  I  understand  it,when  the  term  is  over,  the  policy  is  gone? 

A.     That  is  on  ten-year  renewable  policies,  if  not  renewed. 

MR.  THOMAS.     We  are  talking  about  tontine  policies  now. 

THE  COMMISSIONER.  Take  a  tontine  policy  for  twenty 
years.     At  the  end  of  that  time,  what  becomes  of  the  policy? 

A.  As  I  have  already  stated,  we  give  the  insiired  five  options 
of  set.tlement  at  the  end  of  that  time. 

Q.     That  policy  is  dead  at  that  time,  is  it  not? 

A.  No,  sir.  W^e  give  him  the  privilege  of  continuing  that 
same  policy,  if  he  wants  to. 

MR.  THOMAS.  Q.  Then  it  does  not  absolutely  expire  at 
the  end  of  the  tontine  period? 


130 

A.     After  that  he  may  continiiti  it  as  one  of  his  options. 

MR.  :\leOUTCHEN.  Q.  Is  not  the  insured  entitled  abso- 
lutely to  continue  that  insurance? 

A.  That  is  one  of  the  options  that  he  has.  Some  Companies 
.'specify  that  he  shall  take  a  coin  proposition.  Others  specify 
that  he  shall  take  an  extended  insuTance  to  the  full  amount  due, 
as  long  as  the  reserve  will  carry  it.  Others  specify  that  he  shall 
take  paid-up  insurance  to  the  full  value,  and  others  that  he  shall 
take  the  surplus,  and  continue  his  insurance. 

MR.  RANKIN.  Q.  But  at  the  end  of  the  tontine  period, 
he  must  exercise  some  option? 

A.  He  does  not  have  to  exercise  an  option  in  every  case,  be- 
cause one  option  is  always  automatic  in  all  tontine  policies. 
That  is,  he  is  held  to  have  selected  that  option  by  not  signifying 
a  desire  for  others. 

Q.     But  he  must  exclude  the  othex  options? 

A.     Yes,  sir. 

MR.  McCUTCHEN.  Q.  He  can  exercise  an  option,  of 
ecui-se.  We  understand  that.  But  he  is  given  one  absolutely, 
with  the  choice  of  four  others  in  that  policy? 

A.     Yes,  sir. 

MR.  RANKIN.  Q.  Then  he  is  given  only  the  choice  of  one 
of  the  five  options?  And  he  is  given  that  at  tbe  expiration  of 
the  tontine  period? 

A.     At  the  expiration  of  the  tontine  period,  exactly. 

MR.  McCUTCHEN.  Q.  He  was  insured  for  life,  and  not  for 
a  given  number  of  years? 

A.  No,  sir;  he  was  insured  for  a  given  term  under  this  con- 
tract. 

THE  COMMISSIONER.     Q.     Suppose  the  terra  expires  and 

the  insured  does  not  do  anything.     What  happens  then? 

A.     Under  our  policy  we  would — 

Q.  (Interrupting.)  I  do  not  mean  what  you  would  do,  but 
what  is  the  ordinary  principle? 

A.     It  depends  on  just  what  he  selects. 

Q.  '  No,  that  is  not  the  question.  Take  an  ordinary  tontine 
policy,  with  a  term  of  twenty  years.  At  the  end  of  twenty  years, 
he  has  continued  paying  his  premium  and  he  does  not  do  any- 
thing.     At  the  end  of  the  twenty-first  year  he  dies.      Now, 


131 

what  is  done  under  ordinary  lontiuc  insurance  in  that  case — not 
by  your  Company  particularly? 

A.  I  cannot  tell  you  what  the  other  Companies  do  give.  That 
is  a  matter  of  contract. 

Q.  What  I  want  to  get  at  is  the  general  principles  of  tontine. 
Do  you  understand  that  the  actuaries  of  the  country  have  written 
on  twenty-yeiiir  and  fifteen-year  and  ten-year  tontine  insurance? 

A.     Yes,  sir. 

Q.  If  a  man  holds  a  policy  for  twenty  years,  and  then  does 
not  do  anything  at  the  end  of  twenty-years,  and  dies  the  twenty- 
first  year,  what- happens  then? 

A.  He  gets  paid,  I  presume;  but  his  term  contract  has  termi- 
nated, and  you  have  gone  beyond  the  twenty-year  term. 

MR.  McCUTCHEN.     That  suggests  a  question  to  me. 

i}.  Mr.  Smith,  when  a  tontine  policy  is  issued  upon  the  life 
of  an  individual,  is  it  a  life  policy  or  a  term  policy?  Is  the 
policy-holder  insured  for  a  term,  or  for  life? 

A.     He  is  insud-'ed  for  a  term  by  that  contract. 

Q.     Is  he  not  insured  for  life? 

A.  Not  unless  he  accepts  an  option  to  tluit  elfect  ait  the  end  of 
the  term  insurance. 

iTfE  COMMISSIONER.  Q.  If  the  term  run^  out,  then 
does  he  get  it? 

A.  He  must  have  selected  that  option,  or  contract  must  have 
been  automatic  to  give  him  that. 

Q.  I  am  assuming  the  ordinary  definition  of  tontine,  to  see 
whether  it  is  term  insurance  or  not,  as  the  Legislature  uses  it. 
Tontine  insurance,  as  I  understand,  usually  runs  for  ten  years, 
fifteen  years,  or  twenty  years? 

A.     Yes,  sir. 

Q.  I  take  out  a  tontine  policy  for  fifteen  years.  At  the  end 
of  fifteen  years,  I  do  not  do  anything  at  all,  but  just  let  the  policy 
go.  At  the  end  of  sixteen  years,  or  seventeen  years,  or  twenty 
years,  I  die.     Then  what  happens? 

A.     The  same  as  will  happen  under  any  policy. 

Q.     If  you  cannot  tell  me,  very  well. 

A.     It  depends  upon  what  you  select,  entirely. 

MR.  LANDERS.  Q.  The  Commissioner  says  suppose  he 
does  nothing? 


132 

A.  Then  it  depends  entirely  upon  the  automatic  conditions 
of  his  particular  contract.  As  different  Companies  make  differ- 
eet  features  automatic,  the  specific  oocitract  alone  must  be  ex- 
amined to  give  an  intelligent  answer. 

THE  COMMISSIONER.  Q.  I  am  now  asking  you  as  an 
expert,  independent  of  the  fact  that  you  are  connected  with  the 
Northwestern  Mutual  Life  Insurance  Company,  or  any  other 
Company,  to  take  the  case  of,  say  a  twenty-year  tontine  policy 
that  is  known  as  such  among  writers  of  insurance.  The  twenty 
years  expire,  during  which  time  I  have  paid  my  premiums.  At 
the  expiration  of  that  time,  I  do  nothing.  I  do  not  take  a  step 
of  any  kind.  At  the  end  of  twenty-one  yeaxs,  or  twenty-two 
years,  or  twenty-three  years,  I  die.  AVhat  does  my  estate  or 
beneficiaries  get  from  the  Company? 

A.  You  will  have  to  show  me  your  contract  before  I  can  tell 
you. 

Q.     It  is  all  a  matter  of  contract,  is  it? 

A.     All  a  matter  of  contract,  yes. 

MR.  McCUTCHEN.  Q.  Under  what  you  understand  to  be 
tontine  insurance,  what  would  thd  Commissioner  be  entitled  to 
in  the  instances  he  has  given  you? 

A.     I  repeat  that  it  would  depend  upon  the  contract. 

MR.  THOMAS.     Q.     Would  he  get  anything? 

A.  I  cannot  tell  you  without  seeing  the  contract,  because  the 
contract  governs. 

THE  COMMISSIONER.  Q.  Then,  as  I  understand  it,  the 
word  "tontine"  has  no  meaning  at  all  as  applied  to  a  policy,  ex- 
cept that  it  fixes  the  term  and  gives  a  plan  for  the  distribution 
of  certain  funds? 

A.  It  is  a  term  policy  by  its  contract,  and  we  call  it  tontine 
or  semi-tontine  or  free  tontine,  or  dividend  investment. 

MR.  McCUTCHEN.  Q.  Under  a  tontine  policy,  as  tontine 
insurance  is  understood,  is  not  the  holder  of  the  policy  entitled 
to  take  his  profits  at  the  end  of  the  tontine  period,  and  continue 
his  policy  during  life? 

A.     Yes,  sir;  he  is,  under  certain  of  the  options. 

Q.  Is  that  not  so  under  the  insurance  originally  known  as 
tontine? 

MR.  RANKIN.  He  has  already  stated  that  that  is  a  matter 
of  specific  contract. 


133 

MR.  McCUTCHEN.     I  am  now  speaking  outside  of  that. 

Q.  There  must  be  some  meaning  to  tontine,  is  there  not, 
Mr.  Smith? 

A.     Yes,  sir. 

Q.  When  you  speak  of  tontine  insurance,  do  you  not  ordi- 
narily mean  such  a  contract  as  that;  that  is,  a  contract  under 
which  a  man  may  take  his  portion  of  the  profits  at  the  end  of  the 
tontine  period,  and,  if  he  pleases,  continue  his  policy  during  life 
by  paying  the  premium? 

A.  I  do,  if  the  contract  offers  that  option  and  the  insured 
chooses  it. 

Q.  Then  you  do  not  understand  anything  by  tontine  insur- 
ance except  what  may  be  provided  for  by  the  particular  contract? 

A.     At  the  end  of  that  tenn. 

Q.     Do  you  understand  that  tontine  is  a  principle  that  may 

be  inserted  into  any  policy? 

A.  Yes,  sir;  in  any  participating  policy,  thereby  making  it  a 
term  contract. 

Q.     Into  an  ordinary  life  policy,  or  a  term  policy? 

A.  Not  into  the  ten-year  renewable  term,  because  there  is  no 
surplus  to  deal  with  there. 

Q.     May  it  be  introduced  into  an  ordinary  life  policy? 

A.     Into  any  policy  that  has  a  dividend  or  surplus,  yes,  sir. 

Q.  If  you  introduce  the  tontine  feature  into  an  ordinary  life 
policy,  does  it  convert  that  ordinary  life  policy  into  a  term 
policy? 

A.     It  does. 

Q.     When  is  the  insurance  payable? 

A.     Depending  on  the  contract. 

Q.  Suppose  you  have  an  ordinar}-  life  policy,  with  a  twenty- 
year  tontine  period.  What  is  the  policy-holder  entitled  to  under 
sueh  a  policy  as  that,  in  the  event  he  survives  the  twenty  year 
period  ? 

A.  To  a  settlement  in  accordance  with  the  terms  of  the  con- 
tract. 

Q.     What  would  that  be? 

A.  I  don't  know  what  the  policy-holder  would  select.  A 
few  moments  ago  I  told  you  that  nine  out  of  ten  men  elected  to 
take  their  coin  and  quit. 


134 

Q.     To  take  the  cash  surrender  value  of  the  poHcy  and  quit? 

A.  Yes,  sir.  I  say  nine  out  of  ten;  I  will  cut  that  down 
and  say  four  out  of  five.  ; 

Q.  That  being  insurance  for  life,  do  you  say  that  the  fact 
that  the  tontine  principle  is  used  in  it  convei*ts  it  into  a  te'rm 
policy? 

A.     Yes,  sir;   most  decidedly. 

Q.  But  an  oi-dinary  life  policy,  written  with  a  tontine  period, 
or  written  with  a  tontine  feature  in  it,  does  not  cease  at  the  end 
of  the  tontine  period,  does  it? 

A.  Usually  the  policy-holder  is  given  an  option  of  con- 
tinuing it. 

Q.  How  does  an  ordinaiy  life  policy  into  which  the  tontine 
feature  has  been  introduced  differ  from  the  tontine  policy? 

A.     Why,  it  is  tontine  insurance,  and  there  is  no  difference. 

Q.  Then  a  tontine  policy,  as  you  understand  it,  is  an  ordi- 
nary life  policy  with  a  tontine  feature  added? 

A.  No,  sir;  it  is  any  policy  with  the  tontine  feature  intro- 
duced into  it- — n«t  the  ordinary  life  policy  any  more  than  any 
other  form  into  which  that  feature  can  be  introduced. 

MR.  THOMAS.  Q.  It  is  a  whole  life  policy  with  the  tontine 
feature  added? 

A.  It  is  a  whole  life  policy,  with  the  tontine  feature  added, 
or  it  is  an  endowment  policy,  which  is  another  form  of  term 
policy,  with  the  tontine  feature  added,  the  addition  of  the  ton- 
tine feature  making  it  a  term  policy,  except  that  the  endowment 
policy  is  already  a  term  policy,  and  the  tontine  may  change  or 
reduce  that  period  as  a  forty-year  endowment,  twenty-year 
tontine. 

THE  COMMISSIONER.  Q.  Originally  in  tontine  insur- 
ance there  were  none  of  these  features  which  you  have  stated. 
Take  the  tontine  policy  as  it  existed  in  1880.  You  do  not  mean 
to  say  that  in  that  policy  there  were  certain  privileges  given  to 
the  tontine  policy-holder? 

A.     Yes,  sir. 

Q.  I  understood  that  when  that  class  of  insurance  started, 
the  survivors  got  it  all? 

A.  No,,  sir;  not  as  I  understand  it.  I  began  the  study  of 
insurance  in  1882. 

Q.     You  have  read  up  on  it  since,  have  you  not? 


.     A.      ^\'s.  srr. 

(^      ^'oll  liave  read  niosl  ul'  the  hooks? 

A.  Yes,  sir.  J?iit  at  that  time  we  had  begun  lo  write  semi-ton- 
tine insiiranci',  and  the  policy-holder  who  lapsed  did  not  forfeit 
everything.  Jiut  my  understanding  is,  that  even  with  the  old  ton- 
tine, written  prior  to  that  time,  in  which  there  was  complete  for- 
feiture, they  always  gave  several  options  of  settlement  to  the 
policy-holder  al  the  end  of  the  term. 

(^  When  you  speak  of  tontine  insurance  being  term  insur- 
ance, you  refer  to  the  life  of  the  insured  as  being  the  term,  in 
case  he  did  not  live  out  the  full  term? 

A.     No,  sir;  I  refer  to  the  full  term  the  policy  has  to  run. 

MR.  RANKIN.  Q.  That  is  to  say,  the  terra  does  not  neces- 
sarily extend  to  the  whole  life  of  the  insured? 

A.     No,  sir. 

Q.     But  is  for  a  term  of  years  which  may  be  short  of  life? 

A.     Yes.  sir. 

THE  COMMISSIONER.  Q.  What  works  by  actuaries  are 
considered  standard  by  Insurance  men  upon  these  subjects? 
Give  me  the  names  of  some  of  them. 

A.  Dawson  writes  a  book  on  life  insurance,  and  a  man  by  the 
name  of  Smith,  an  actuary  of  New  York,  writes  a  book  on  insur- 
ance. Probably  as  good  an  authority  as  we  have  is  the  reports 
of  Massachusetts  from  1851  to  1858. 

Q.     Do  they  define  these  terms  and  go  into  these  matters? 

A.  They  give  you  the  general  information.  They  do  not 
define.  An  Insurance  student  does  not  need  these  things 
defined. 

Q.  What  1  desire  to  know  is,  do  actuaries  who  have  written 
works  define  these  terms  in  general? 

A.  I  will  venture  to  remark  that  we  have  not  very  much  in 
the  way  of  text-books  in  insurance.  There  are  'perhaps  half  a 
dozen  books  out,  in  toto,  that  we  have  to  go  to.  But  the  general 
principles  underlying  the  subject  have  appeared  in  journals  and 
in  pamphlets  and  essays,  etc. 

MR.  McCUTCHEN.    Q.    Do  you  know  who  McCIintock  was? 

A.     Quite  well. 

Q,     Who  was  he?  , 


13G 

A.  He  was  for  many  years,  from  1871  until  aTbout  six  years 
ago,  actuary  for  the  Northwestern  Mutual  Life. 

Q.  Do  you  know  what  his  definitions  of  term  insurance  amd 
tontine  insurance  are? 

A,     I  do  not. 

Q.     Do  you  know  of  a  writer  named  Wallace  on  the  subject? 

A.  I  have  heard  of  him,  but  I  am  not  familiar  with  his 
opinions  on  this  subject. 

Q.     You  have  heard  of  him,  but  are  not  familiar  with  him? 

A.     No,  sir. 

Q.     Do  you  know  of  a  writer  named  Willey? 

A.     I  have  seen  his  book. 

Q.     Do  you  know  how  he  defines  these  terms? 

A.  I  cannot  say  that  I  have  iu  mind  any  particular  defini- 
tions of  them  as  given  by  him  now. 

ME.  THOMAS.  Q.  You  say  Mr.  McClintock  was  the  actu- 
ary for  your  Corapany  until  about  six  years  ago? 

A.  Until  about  six  years  ago,  yes,  sir,  when  he  went  with  the 
Mutual  Life. 

THE  COMMISSIONEE.  I  would  like  to  suggest  to  you 
gentlemen  that  1  would  like  very  much  to  know  the  policies  that 
were  being  issued  by  the  different  Companies  before  this  law  was 
passed.  Section  450  of  the  Civil  Code.  I  do  not  know  whethet 
you  have  included  copies  of  them  among  the  policies  sent  me,  or 
not.  In  other  words,  I  would  like  to  know  what  kind  of  policies 
the  different  Companies  were  issuing  throughout  the  country  at 
the  time  of  the  passage  of  this  Act  of  1880. 

MR.  THOMAS.  Those  that  were  in  actual  use,  say  in  the 
early  part  of  1880,  I  presume  you  mean. 

ME.  DONNELS.  Probably  I  can  give  you  some  information 
upon  that,  Mr.  Commissioner.  Before  1880,  the  Companies 
issued  what  were  known  as  life  policies,  divided  into  four  classes 
— ordinary  life,  ten -payment  life,  fifteen-payment  life,  and 
twenty-payment  life — and  the  endowment  contracts,  limited  to 
ten-year  endowments,  fifteen-year  endowments,  and  twenty-year 
endowments.  In  about  the  year  1870,  they  adopted  this  tontine 
principle  in  connection  with  all  of  those  policies.  That  could 
be  written  in  connection  with  any  of  those  contracts. 

ME.  THOMAS.  What  Companies  are  you  referring  to  now, 
Mr.  Donnels? 


137 

MI^   DONNETiS.    Tlie  New  York  (.'ompanies  n;enerally. 

MK.  THOMAS.     Would  that  include  the  .Alutual  Life? 

MR.  LANDEHS.  No;  only  two  Companies,  the  New  York 
Life  and  the  Equitable. 

MH.  DONNELS.  The  New  York  Life  and  the  Equitable, 
yes. 

THE  COMMISSIONER.  What  I  want  to  get  at  is  the  con- 
ditions that  were  in  tlie  policies  prior  to  that  time;  in  other 
words,  the  condition  for  non-forfeiture,  if  there  was  one. 

MR.  MUNSELL.  There  was  an  absolute  forfeiture  then,  if 
the  payment  ceased  during:  the  period  the  policy  was  to  run,  on 
tontine  policies. 

THE  COMMISSION lai.  There  was  no  policy  in  which  lan- 
guage such  as  we  have  in  this  Code  was  in  use  at  that  time? 

MR.  THOMAS.  Mr.  Forbes  tells  me  that  the  Mutual  Life 
had  it  in  its  pohcies  before  that. 

MR.  MUNSELL.  As  1  understand,  we  are  speaking  of  the 
tontine  principle  only. 

THE  COMMISSIONER.  No,  1  do  not  care  about  that. 
What  1  want  to  know  is,  whether  there  was  any  policy  in  use  at 
this  time  in  which  they  used  both  of  the  alternatives  given  by 
this  seel  iu II  of  the  Code,  or  in  which  only  one  was  used. 

MR.  THOMAS.  Mr.  Forbes  tells  me  that  the  Mutual  Life,  of 
New  York,  had  such  a  provision  in  before  the  law  compelled  it. 
How  was  it  with  the  New  York  Life,  Colonel  Ilawes? 

MR.  IIAWI'.S.  We  changed  our  contracts  to  comply  with 
the  law. 

M]{.  THOMAS.  Did  not  the  Mutual  Life  have  such  a  pro- 
vision before  that  time,  Mr.  I'^orbes? 

MR.  I'ORBES.     I  think  it  did. 

MR.  DONNELS.  Some  of  the  old  contracts  written  way 
back  in  18G5  provided  in  the  ciise  of  an  rrdinary  life  contract,  in 
the  event  of  a  forfeiture  after  two  years,  paid-up  insurance  for 
the  amount  of  the  premiums  paid  would  l^e  issued — that  is,  be- 
fore they  put  it  on  the  basis  of  a  reserve. 

THE  COMMISSIONER.  I  do  not  care  to  go  way  back  to 
1865,  but  just  before  the  time  this  Act  was  passed  by  the  I^egis- 
lature. 

MR.  MUNSELL.     1  will  say,  Mr.  Commissioner,  that  while 


o 


138 

the  laws  of  Massachusetts  and  ]\raine  had  for  many  years  com- 
pelled Companies  organized  in  those  States  to  guaran'tee  aiito- 
matic  extended  "term"  insurance  for  such  amounts  as  foiir-fifths 
and  three-fourths  of  the  reserve  respectively  would  purchase,  or, 
alternQtively,  grant  paid-up  insurance  for  reduced  amou'nts  in- 
stead, upon  surrender  of  the  original  policy  within  a  few  months 
after  lapse,  yet  at  the  time  this  Act  was  passed  hy  the  California 
Legislature,  so  far  as  I  know,  there  was  no  Company  in  the 
country  that  gave  automatic  paid-up  insu.rance  on  "ordinary 
life  policies,"  by  law  or -otherwise,  and  no  States,  unless  it  was 
Massachusetts  and  Maine,  which  gave  automatic  extended  insur- 
ance at  that  time;  but  Massachusetts  repealed  the  old  extension 
law  and  gave  automatic  paid-up  insurance  in  1880,  about  the 
same  time  or  soon  after  this  bill  was  passed.  So  that,  at  the 
"time  this  law  was  passed,  T  believe  there  was  no  Company  that 
gave  automatic  paid-up  insurance  on  ordinary  life  policies. 

ME.  THOMAS.     Did  they  give  paid-up  insurance  on  demand? 

MK.  MUNSELL.  They  gave  it  conditionally,  only  as  a 
secondary  matter.  Here  is  a  circular  of  the  ISTew  York  Life, 
and  it  states  the  conditions  upon  which  paid-up  policies  were 
issued.  I  thought  that  it  might  be  material  now,  in  connection 
with  the  views  expressed  here  yesterday,  as  to  whether  paid-up 
policies  were  then  granted  automatically.  They  were  not  so 
i&sued,  but  always  conditionally. 

MK.  THOMAS.     This  only  requires  demand  and  surrender. 

MR.  MUNSELL.  Yes.  That  circular  is  thirty  years  old, 
and  I  thought  it  might  be  of  interest,  as  it  shows  the  conditions 
upon  which  paid-up  policies  were  granted. 

MR.  LANDERS.  T  have  represented  the  Manhattan  Life  In- 
surance Company  since  1864,  and  \  ran  furnish  the  Commis- 
sioner with  policies  running  l)efore  the  date  of  this  statute — all 
the  policies  that  have  been  issued  in  this  State  since  we  entered 
the  State  in  1859,  where  they  received  paid-up  policies  for  the 
amount  of  the  reserve.  At  the  time  of  the  trouble,  we  remained 
here,  but  we  did  no  business — simply  remained  and  collected  the 
J>remiuTns.  We  issued  paid-up  policies  on  the  surrender  of  the 
original  policies,  if  a  nian  was  not  able  to  pay  his  premium. 
Paid-up  insurance  was  issued  to  him  then  in  accordance  with  the 
reserves.     I  do  not  claim  that  as  iany  particular  distinction  for 


130 


the  Manhattan  Life  Tnpiirance  Company,  for  1  know  that  the 
Mutual  Life,  and  the  New  York  Life,  and  the  Gerinania,  gave  the 
same  insurance.  All  of  those  C^ompanies  did  that,  as  an  act  of 
right  and  as  an  act  of  justice. 

MR.  SiMITIL  I  desire  to  make  a  correction.  Mr.  Munsell 
says  that  none  of  the  Companies  ever  gave  automatic  insurance. 
Every  now  and  then  we  have  policies  come  up  in  which  the 
action  was  automatic.  I  settled  only  a  short  time  ago  an  en- 
dowment policy  on  the  life  of  the  brother  of  Eli  Dennison,  whr> 
took  out  a  twenty  or  thirty-year  endowment  policy,  and  paid 
three  annual  premiums.  When  the  policy  matured,  the  Com- 
pany notified  me.  and  asked  me  to  look  the  matter  up,  as  havin.u' 
lapsed  his  policy  three-tenths  paid,  he  was  entitled  to  a  certain 
sum.  I  found  that  Eli  Dennison  was  his  brother,  and  wrote  to 
him  that  the  automatic  action  of  the  policy  had  kept  it  in  force. 
That  policy  was  issued  certainly  twenty  or  twenty-five  years  ago. 
showing  that  our  policies  at  that  time  gave  paid-up  iusurance 
automatically. 

MR.  MUNSELL.  T  had  reference  to  only  ordinary  life 
policies. 

MR.  SMITH.     That  was  paid-up  insurance  by  its  terms. 

MR.  MUNSELL.     But  I  am  speaking  of  ordinary  life  policies. 

MR.  SiVIITH.  I  do  not  know  as  to  life  policies.  That  was  a 
limited-payment  policy,  and  that  is  a  different  proposition. 

THE  CU:\IMlSSIONER.  T  have  here  now,  gentlemen,  a 
copy  of  the  bill  as  originally  presented  to  the  Legislature,  which, 
as  afterwards  amended,  became  Section  450  of  the  Civil  Code. 
Mr.  Munsell  has  kindly  furnished  me  this,  and  it  will  be  iTi?ertf*d 
in  the  record  as  a  part  thereof,  at  this  point. 

SENATE   BTLL  NO.   378. 
An  Act  to  Amend  Section  Four  hundreil  and  lifty, 
and  to  Repeal  Sections  Four  hundred  and  fifty-one  aud 
Four  hundred  and  fifty-two  of  the  Civil  Code  of  Cali- 
fornia, relating  to  Life  Insurance. 
The  People  of  the  State  of  California,  represented  in  Senate  and 

■  Assembly,  do  enact  as  follows: 

■  Section  1.     Section  four  hundred  and  fifty  of  said  Code  is 
hereby  amended  to  read  as  follows: 


140 

Section  450.  Every  contract  or  policy  of  insurance  here- 
after made  by  any  person  or  corporation  organized  under  the 
laws  of  this  State,  or  under  those  of  any  other  State,  or  country, 
with  and  upon  the  life  of  a  re'sident  of  this  State,  and  delivered 
within  this  State,  shall  contain,  unless  otherwise  specifically 
contracted  between  the  insurer  and  the  insured,  a  stipulation 
that  when,  after  three  full  annual -premiums  shall  have  been  paid 
on  such  policy,  it  shall  cease  or  become  void  solely  by  the  non- 
payment of  any  premium  when  due,  its  entire  net  reserve,  by  the 
American  Experience  Mortality,  and  interest  at  four  and  one- 
half  per  cent  yearly,  less  any  indebtedness  to  the  Company  on 
such  policy,  shall  be  applied  by  such  Company  as  a  single  pre- 
mium, at  such  Company's  published  rates  then  in  force,  either, 
first,  to  the  purchase  of  non-participating  term  insurance  for  the 
full  amount  insured  by  such  policy;  or,  second,  upon  the  written 
application  by  the  owner  of'  such  policy,  and  the  surrender 
thereof,  to  such  Company  at  its  principal  office  within  three 
months  from  such  non-payment  of  premiums,  to  the  purchase  of 
ii  non-participating  paid-up  pohcy,  payable  at  the  time  the  origi- 
nal policy  would  be  payable  if  continued  in  force;  both  kinds 
of  insurance  to  ])c  subject  to  the  same  conditions,  except  as  to 
payment  of  premiums,  as  those  of  the  original  policy.  It  may  be 
provided,  however,  in  such  stipulation  that  no  part  of  such  term 
insurance  shall  be  due  or  payable  unless  satisfactory  proofs  of 
death  be  furnished  to  the  insuring  Company  within  one  year 
after  death,  auf]  that,  if  death  shall  occur  within  three  years 
after  .«uch  non-payment  of  premium,  and  during  such  term  of 
insurance,  there  shall  be  deducted  from  the  amount  payable  the 
sum  of  all  the  premiums  that  would  have  become  due  on  the 
original  policy  if  it  had  continued  in  force.  If  the  reserve  on 
endownient  policies  be  more  than  enough  to  purchase  temporary 
.insurance,  as  aforesaid,  to  the  end  of  the  endowment  term,  the 
excess  shajll  be  applied  to  the  inirchase  of  pure  endowment  iinsur- 
ance,  payable  at  the  end  of  the  term, if  the  insured  be  then  living. 
It  is  further  enacted,  that  if  any  iife  insurance  corporation  or 
compa.ny  shall  deliver  to  any  person  in  this  State  a  policy  of  in- 
surance upon  the  life  of  any  person  residing  in  this  State,  not  in 
conformity  with  the  provisions  of  this  section,  the  right  of  such 
corporation  or  company  to  transact  business  in  this  State  shall 


141 

therfujKJU  and  thereby  cease  and  determine,  and  the  Insurance 
Commissioner  shflll  immediately  revoke  the  certificate  of  such 
corporation  or  company  authorizing  it  to  do  business  in  this 
State,  and  ])ublish  such  revocation,  daily,  for  the  period  of  two 
weeks,  in  two  daily  newspapers,  one  published  in  the  City  of  San 
i'rancisco,  and  the  other  in  the  City  of  Sacramento. 

Sec.  2.  Sections  four  hundred  and  fifty-one  and  four  hun- 
dred and  fiftv-two  of  the  said  Civil  Code  are  hereby  repealed. 

MK.  MUNSP'LL.  It  is  precisely  the  same  in  form  and  sub- 
stance— in  fact,  the  language  is  the  same  in  tliis  proposed  Senate 
Bill  Xo.  378  as  in  Section  450  of  the  Civil  Code,  with  the  excep- 
tion of  one  stipulation,  which  was  inserted  aftenvards.  Colonel 
Hawes  wanted  to  know  about  that  particular  clause,  and  I  told 
him  I  was  going  to  amend  my  own  Act. 

MR.  THOMAS.  It  says,  "unless  otherwise  specifically  con- 
tracted between  the  insurer  and  the  insured."  Otherwise  it  is 
the  same. 

MR.  MUX  SELL.  Colonel  Hawes  asked  me  what  1  was  going 
to  do.  I  said,  "I  am  going  to  propose  an  amendment  to  my  own 
bill."  1  pulled  out  a  copy  of  the  bill  from  my  pocket,  and  1 
said,  "1  am  going  to  propose  an  amendment  so  that  it  will  show 
exactly  what  we  mean.  We  intend  to  give  the  Companies  full 
scope  to  write  tontine  insurance,  and  to  give  term  or  paid-up  in- 
surance; term  insurance  means  extended  insurance  always,  as 
used  in  this  section,  as  well  as  in  the  policies  of  the  Mutual 
lieni'lit  Life  Insurance  Company,  from  whose  policy  the  non- 
forlViture  provision  was  copied,  as  well  as  in  the  policies  of  aU 
Comjianies  granting  extended  term  in'.^urance. 

.MK\  RAXKIX.  Your  idea  about  it  is  that  the  term  "paid- 
up  insurance/'  as  used  in  the  first  portion  of  that  Act,  meant 
that  a  policy  should  contain  a  provision  that  if  it  was  forfeited 
for  non-payment  of  an  annual  premium  after  thi"e"e  |Kiyment6 
had  been  made,  then  the  Company  would  issue  a  paid-up  jwlicy 
for  a  certain  amount  to  the  insured. 

il K.  :MUXSELL.  For  either  term  or  paid-up  insurance  for  its 
then  value,  agreeable  to  laws  o-r  standards  of  reserve  by  which 
the  insuring  Company  was  governed. 

MR.  RAXKIX^.     That  is  your  understanding? 

MR.  MUX^SELL.     That  is  mv  understanding. 


142 

MR.  RA'NKIN.  Why  did  yoii  diiplicntc  the  term  "paid-up 
insurance"  thereafter  in  the  Act? 

MR.  MUNSELL.  I  want  to  call  special  attention  to  that. 
This  law  was  the  best  that  could  be  gotten  up.  It  was  taken 
directly  from  the  policy  of  the  Mutual  Benefit  Life  Insurance 
Company. 

MR.  RANK  IN.  If  that  was  your  idea  of  the  meaning  of  the 
term  "paid-up  insurance,"  why  did  you  provide  that  if  they 
ii^sued  a  paid-up  policy — why  did  you  provide  the  two?  Why 
was  it  necessa-ry  to  have  that  in  a  paid-up  policy? 

MR.  MUNSELL.  The  pTovision  for  paid-up  policies  was  an 
alternative  one.  The  State  of  Massachusietts  was  then  proposing 
to  change  its  laws,  and  they  had  a  little  diffeTent  standard,  a 
different  mortality  table.  I  would  like  to  invite  the  attention  of 
the  gentlemen  present  to  that  particular  2>oint  very  carefully. 
We  wished  to  make  it  broad  en'ough  to  enable  every  Company  to 
come  in,  provided  they  had  no  provision  in  theix  policies  by 
which  they  could  confiscate  the  resieTve  on  a  man's  policy  without 
his  knowledge.  The  Maine  Law  had  still  a  difPerent  standard. 
They  gave  antomatic  extended,  or  paid-up  insurance,  but  it  was 
still  a  different  standard.  They  only  gave  four-fifths  of  the  re- 
serve, and  I  think  they  charged  a  different  rate  after  lapse.  The 
matter  of  the  rate  is  also  an  important  matter.  In  these  "term" 
extended  policies,  after  they  lapse,  the  rate  charged  by  the 
Mutual  Benefit  is  just  the  merest  fraction  more  than  one-third  of 
the  rate  at  the  then  age  at  the  date  of  lapse  of  the  o'riginal  policy, 
and  there  is  no  reserve  carried  on  that  tei'm  policy,  but  the  origi- 
nal policy  under  all  plans  is  extended  until  the  reserve  is  ex- 
hausted at  the  "teTm-rate." 

MR.  THOMAS.  Can  we  not  (^loso  the  argument  now,  and 
then  if  there  is  any  further  evidence,  continue  with  it? 

THE   COMMISSIONER.     I  think  that  is  the  better  plan. 

MR.  RANKIN.     Very  well.     T  shall  argue  very  briefly. 


143 

ARGUMENT  OF   (iEO.   A.    KANKIN,  ESQ., 

Attorney  for  the  Northwesterm  Mutual  Life  Insurance  Company, 

of  Milwaukei',  Wisconsin. 

MR.  RAXKIN.  Mr.  Commissioner:  The  section  of-  the 
Civil  Code  of  Califoraia  the  interpretation  of  which  you  are 
seeking,  is  very  long,  quite  involved,  full  of  grammatical  blun- 
ders, of  curious  punctual  ions,  and  of  words  of  doubtful,  if  not 
double  meaining.  You  have  kindly  asked  the  Insurance  Com- 
panies, through  tlieir  Attorneys  and  General  Agents,  to  give 
you  the  interpretation  which  they  have  placed  and  do  place  upon 
this  statute,  and  to  aid  you  in  arriving  at  a  right  understanding 
of  its  purpose  and  meaning. 

This  statute  clothes  you  with  the  authority  to  take  away  from 
any  Insurance  Company  the  right  to  do  business  in  this  State, 
if  any  policy  which  it  has  issued  does  not  conform  to  the  require- 
ments of  this  law.  I  understand  it  is  the  purpose  of  your  present 
investigation  to  asiceritaiin  whether  any  Insurance  Company  has 
issued  policies  contrary  to  this  statute,  and  if  so,  what  you  ought 
to  do  relative  to  the  revocation  of  its  certificate. 

I  take  it.  Mr.  Commissioner,  that  all  the  gentlemen  here  pres- 
ent, and  yuu  above  all  others,  desire  to  have  a  fair,  honest,  a'nd 
juet  interpretation  of  this  law.  I  cannot  conceive  that  this  in- 
•juiry  is  an  idle  one,  nior  that  you  desire  to  work  any  hardship 
upon  the  Companies.  Above  all,  it  is  impossible  for  me  to  think 
that  your  investigation  is  actuated  by  any  other  motives  than  a 
sincere  desire  to  protect  the  rights  of  those  who  hold  insurance 
in  this  State.  It  is  alike  imeonceivabh'  to  me  that  vou  would 
take  any  action  whicli,  while  resulting  in  a  punishment  of  the 
Companies,  would  also  operate  to  the  detriment  of  the  policy- 
holders. 

The  statute  under  consideration  is  as  follows: 

"  Every  contract  or  policy  of  insurance  hereafter  made  by  any 
"  person  or  corporation  organized  under  the  laws  of  this  State, 
*'■  or  under  those  of  any  other  State,  or  country,  with  and  upon 
"  the  life  of  a  resident  of  this  State,  and  delivered  within  this 
*•'  State,  shall  contain,  unless  specifically  contracted  between  the 
"insurer  ;inil  the  insured  for  tontine  insurance,  or  for  other 
"  term  or  paid-up  insurance,  a  stipulation  that  when,  after  three 
"  full  annual  premiums  shall  have  been  paid  on  such  policy,  it 


144 


shall  cease  or  become  void  solely  by  the  non-payment  of  any 
premium  wlien  due,  its  entire  net  reserve,  by  the  American 
Experience  Mortality,  and  interest  at  four  and  one-half  per  cent 
yearly,  less  any  indebtedness  to  the  Company  on  sueh  policy, 
shall  be  applied  by  such  Compaaiy  as  a  single  premium,  at  such 
Company's  published  rates  in  force  at  the  date  of  the  original 
policy,  but  at  the  age  of  the  insured  at  the  time  of  lapse,  either 
to  the  purchase  of  non^participating  term  insurance  for  the 
full  amount  insured  by  such  policy,  or  upon  the  written  appli- 
cation by  the  owner  of  such  policy,  and  the  suiTender  thereof 
to  such  Company,  within  three  months  from  such  non-pay- 
ment of  premium,  to  the  purchase  of  a  non-participating  paid- 
up  policy  payable  at  the  time  the  original  policy  would  be  pay- 
able if  continued  in  force;  both  kinds  of  insurance  to  be  sub- 
ject to  the  same  conditions,  except  as  to  payment  of  premiums, 
as  those  of  the  original  policy.  It  may  be  provided,  however, 
in  such  stipulation,  that  no  part  of  such  term  insurance  shall 
be  due  or  payable,  unless  satisfactory  proofs  of  death  be  fur- 
nished to  the  insuring  Company  within  one  year  after  death, 
and  that,  if  death  shall  oecur  within  three  years  after  such  non- 
payment of  premium,  and  during  such  term  of  insuxance,  there 
shall  be  deducted  from  the  amount  payable  the  sum  of  all  the 
premiums  that  would  have  become  due  on  the_original  policy 
if  it  had  continued  in  force.  If  the  reserve  on  endowment 
policies  be  more  than  enough  to  purchase  temporary  insurance, 
as  aforesaid,  to  the  end  of  the  endowment  term,  the  excess  shall 
be  applied  to  the  purchase  of  pure  endowment  insurance,  pay- 
able at  the  end  of  the  term,  if  the  insured  be  then  living.  If 
any  life  insurance  corporation  or  company  shall  deliver  to  any 
person  in  this  State  a  policy  of  insurance  upon  the  life  of  any 
person  residing  in  this  State,  not  in  conformity  with  the  pro- 
visions of  this  section,  the  right  of  such  corporation  or  com- 
pany to  transact  business  in  this  State  shall  thereupon  and 
thereby  cease  and  terminate,  and  the  Insurance  Commissioner 
shall  immediately  revoke  the  certificate  of  such  co'rporation  or 
company  authorizing  it  to  do  })usiness  in  this  State,  and  pub- 
lish such  revocation  daily,  for  the  period  of  two  weeks,  in  two 
daily  newsj)apers,  one  published  in  the  City  of  San  Francisco, 
and  the  other  in  flic  Citv  of  Sacramento."     (C.  C,  Sec.  450.) 


145 

Frdin  ihu  intimations  which  yon  have  l>een  pleased  to  give  lus.  I 
LinderstaJid  that  two  principal  questions  have  arisen  in  your 
mind,  the  firsit  being,  What  class  or  eharaeter  of  insui-aace  is 
excepted  from  the  operation  of  this  statute?  And  having  satis- 
factorily answered  this  question,  the  n'cxt  is,  whether,  as  to  the 
class  of  insurance  which  falls  within  the  statute,  the  policies  must 
contain  a  double  stipulation,  first,  far  automatic  extended  insur- 
ance in  any  event,  and  also  an  option  to  the  insured  to  take  in 
lieu  thereof  a  paid-up  policy. 

You  will  ohserve  that  the  statute  contains  much  matter  which 
throws  no  light  on  the  two  problems  which  I  have  mentioned. 
These  matters  have  been  interlarded  in  the  statute  in  such  man- 
ner that  the  purpose  and  object  of  the  statute  are  almost  lost  sight 
of.  I  think  they  may  be  eliminated,  and  thus  we  will  be  aided  in 
obtaining  a  correct  interpretation  of  the  statute.  By  this  means 
we  will  get  at  its  very  heart.  Eliminating  those  parts  which  I 
consider  unimportant  and  not  aiding  in  the  interpretation  of  the 
statute,  we  will  have  it  reduced  to  a  more  concise  form.  I  hand 
you  a  copy  which  1  have  thus  prepared,  and  will  ask  you  to  kindly 
follow  me  in  the  reading  of  it. 

The  first  reduction  will  make  the  statute  read  as  follows: 

"  Ever}-  contract  *  *  *  of  insurance  *  *  *  shall  con- 
"  tain,  unless  specifically  contracted  between  the  insurer  and  the 
''  insured  for  tontine  insuxauce,  or  for  other  terra  or  paid-up  in- 
"  surance,  a  stipulation  that  when,  after  tliree  full  anniuil  pre- 
"  miums  shall  have  been  paid  on  such  policy,  it  shall  cease  or 
"  become  void  solely  by  the  non-payment  of  any  premium  when 
"  due,  its  entire  net  reserve  *  *  *  p^all  be  applied  by  such 
"  Company  as  a  single  premium.  *  *  *  either  to  the  purchase 
"  of  non-participating  term  insurance  for  the  full  amount  in- 
"  sured  by  such  policy,  or  upon  the  written  application  by  the 
"  owner  of  such  policy,  and  the  surrender  thereof  to  such  Com- 
"  pany  within  three  months  from  such  non-payment  of  premium, 
"  to  the  purchase  of  a  non-participating  paid-up  policy  payable 
"at  the  time  the  original  policy  would  be  payable  if  continued 
"  in  force." 

You  will  see,  Mr.  Commissioner,  that  I  have  eliminated  from 
the  statute  nothing  w^hich  is  important,  so  far  as  the  two  points 


14G 

under  consideration  are  concerned,  and  nothing  whicli  will  aid 
us  in  the  interpretation  of  the  statute  in  those  respects. 

A  little  further  examination  of  the  statute,  as  above  reduced, 
will  show  that  many  other  matters  can  be  eliminated  from  it  to 
our  mutual  advantage,  in  arriving  at  a  correct  interpretation, 
these  being  mere  matters  of  detail,  which,  however,  tend  to  make 
the  statute  obscure.  Leaving  out  these  matters,  the  statute  will 
read  as  follows: 

"  Every  contract  *  *  *  of  insurance  *  *  *  shall  con- 
*•'  tain,  unless  specifically  contracted,  *  *  *  for  tontine,  or  for 
"  other  term  or  paid-up  insurance,  a  stipulation  that  when, 
'•  *  *  *  such  policy  *  *  *  shall  become  void  *  *  *  by 
« *  *  *  non-pa}Tnent  of  (a)  premium,  *  *  *  its  reserve 
"  *  *  *  *  shall  be  applied  by  (the  insurer)  as  a  single  pre- 
"  mium  *  *  *  either  to  the  purchase  of  *  *  *  term  insur- 
"  ance,  *  *  *  or  upon  the  written  application  by  the  owner  of 
"  such  policy,  *  *  *  to  the  purchase  of  *  *  *  a  paid-up 
*'  policy." 

Now,  in  my  opinion,  this  statute  will  be  made  still  plainer  if 
we  put  the  excepting  portion  of  it  in  the  form  of  a  proviso  at  the 
end  of  the  statute.     It  will  then  read: 

"  Every  contract  *  *  *  of  insurance  *  *  *  shall  con- 
"  tain  *  *  *  a  stipulation  that  when  *  *  *  such  policy 
'•shall  become  void  *  *  *  ^y  *  *  *  non-payment  (a)  of 
"  premium  *  *  *  its  reserve  *  *  *  shall  be  applied  by  (the 
"  insurer)  as  a  single  premium,  *  *  *  either  to  the  purchase 
"  of  *  *  *  term  insurance,  *  *  *  qj.  upon  the  written  ap- 
'*  plication  by  the  owner  of  such  policy,  *  *  *  to  the  purchase 
('  of  *  *  *  a  paid-up  policy — provided  this  section  shall  not 
"  apply  where  it  is  specifically  contracted  *  *  *  for  tontine, 
"  or  for  other  term  or  paid-up  insurance." 

We  have  now  got  the  statute  in  such  form  that  its  object  and 
intent  appear  reasonably  plain.  You  follow  me  in  this  respect, 
Mr.  Commissioner? 

THE  COMMISSIONEE.     Yes,  sir. 

MR.  EAISTKIN.  I  desire  next  to  state  what  I  understand  your 
interpretation  of  this  statute  to  be,  that  is,  the  conclusions  which 
you  have  arrived  at,  so  far  as  I  may  judge  from  the  intimations 
which  you  have  given  us.     I  desire  also  to  state  what  interpreta- 


147 

lion  of  the  statute  has  been  arrived  at  by  those  gentlemen  who 
have  preceded  me  iii  their  arguments.  If  1  correctly  understand 
your  temporary  co^n elusions,  your  interpretation  of  this  statute 
would  require  that  every  contract  of  insurance  should  contain 
the  two  following  stipulations: 

(1)  That  if  the  policy  becomes  void  for  non-payment  of  a  pre- 
mium, the  insurer  will  issue  to  the  insured,  without  application, 
a  new  policy  for  the  same  amount  as  the  original  policy,  for  such 
a  term  as  the  reserve  considered  as  a  single  payment  would  pur- 
chase; and 

(2)  That  the  insurer  holds  itself  in  readiness  at  any  time 
within  three  months  from  the  time  the  original  contract  became 
void,  to  issue  to  the  insured,  in  lien  of  the  second  policy,  a  third 
policy,  which  shall  be  fully  paid-up,  and  for  such  an  amount  as 
the  reserve  considered  as  a  single  payment  would  purchase. 

Am  I  correct  in  my  understanding  of  the  temporary  conclu- 
sions at  which  you  have  arrived? 

THE  COMMISSIONER.     Xot  every  contract. 

MR.  RANKIX.  For  the  purpose  of  construction,  I  have  left 
the  proviso  out  of  consideration. 

THE  COMMISSIONER.  You  c=ay  I  interpret  it  as  appl}-ing 
to  every  contract.  I  say,  provided  it  is  not  a  tontine  policy,  or  a 
term  policy,  or  a  paid-up  policy,  as  specified  in  the  statute. 

MU.  RANKIN.  I  may  leave  out  of  consideration  for  the  pres- 
ent the  proviso  in  order  that  we  may  first  arrive  at  the  interpreta- 
tion of  the  statute  concerning  the  stipulation  which  those  policies 
shall  contain  which  fall  within  the  statute. 

I  proceed  next  to  state  my  understanding  of  the  conclusion,8 
arrived  at  by  the  able  gentlemen  who  have  preceded  me  in  their 
attempt  to  construe  this  statute.  My  understanding  of  their  con- 
clusions would  make  the  statute  read  as  follows: 

"  Every  contract  of  insurance  shall,  at  the  option  of  the  in- 
"  surer,  contain  either  one  or  the  other  of  these  stipulations: 

"  (1)  A  stipulation  that  if  the  contract  becomes  void  for  the 
"  non-payment  of  a  premium,  the  insurer  will  issue  to  the  insured 
"  a  new  paid-up  policy  for  such  an  amount  as  the  reserve,  con- 
"  sidered  as  a  single  premium,  would  buy;  or 

"  (2)  A  stipulation  that  if  the  contract  becomes  void  for  non- 
"  payment  of  a  premium,  the  insurer  will  issue  to  the  insured  a 


148 

"  new  policy  for  the  same  amount  as  the  original  policy,  to  run 
"  for  such  a  term  as  the  reserve  wouild  buy,  considered  as  a  single 
"  premium." 

ME.  THOMAS.  Why  do  you  say,  "At  the  option  of  the  in- 
surer?" It  is  a  part  of  the  original  contract,  is  it  not,  the  option 
of  both  of  them? 

MR.  RANKIN.  I  did  not  so  understand  from  your  argument. 
I  understood  that  this  was  an  option  which  was  left  wdth  the 
insurer. 

MR.  THOMAS.  That  is  what  I  do  mean,  that  it  is  the  option 
of  the  insurer.  But  I  don't  want  to  be  understood  also  as  saying 
that  the  insured  has  his  choice  as  to  which  he  shall  take. 

MR.  McCUTCHEN.  Mr.  Thomas'  position  was,  that  if  the 
contract  between  the  insurer  and  the  insnred  provided  for  either 
one  of  those  forms  of  insurance,  that  tliat  was  within  the  statute. 

MR.  RANKIN.  Inasmuch  as  the  Company  can  write  the  in- 
surance and  the  insmred  cannot,  the  option  must  be  with  the 
Company.  That  is  to  say,  the  Company  can  decline  to  write  the 
insurance  except  in  a  certain  way,  and  therefore  it  exercises  itfi 
option  to  give  one  form  or  the  other  of  stipulations,  always  con- 
sulting the  insured,  of  eoui'se. 

THE  COMMISSIONER.  You  have  left  out  the  proposition 
of  the  surrender  of  the  policy  within  three  months.  I  under- 
stand Mr.  Thomas'  contention  to  be  that  the  policy  can  contain 
a  statement  that  the  reserve  sball  be  applied  as  a  single  payment 
of  extended  term  insurance  for  the  original  amount,  or  that  the 
Company  will  give  a  paid-up  policy  for  the  amount  that  the  re- 
serve will  purchase  as  a  single  payment — one  or  the  other,  but  not 
both.  And  that  if  the  policy  contains  the  latter  provision,  the 
insured  must  make  demand  within  three  months  after  the  date  of 
lapse  or  failure  to  make  a  payment  when  due,  or  his  rights  under 
the  policy  are  gone.  I  want  to  say  to  you,  gentlemen,  that  that 
seems  to  me  a  vital  thing,  and  it  interferes  to  a  great  extent  with 
my  agreeing  with  you.  Of  course  I  am  not  in  the  insurance 
business,  but  at  the  same  time,  I  am  here  to  see  that  the  policy- 
holder is  considered.  We  all  know  that  policy-holders  do  not 
read  their  policies  and  get  an  understanding  of  them  as  well  as 
they  should.  And  if  a  man  ceases  making  his  payments,  he  very 
naturally  thinks  it  is  all  over  with  his  policy.     As  I  understand 


UJ» 


Mr.  Thomas'  theory,  ii"  a  |>olicy  wan  acccptfd  hy  the  insured  witli 
a  clause  in  it  calling  for  paid-up  insurance  on  demand  in  case  of 
forfeiture,  and  there  was  no  action  on  the  part  of  tiie  insured 
within  three  months,  then  at  the  end  of  that  ])eriod  there  would 
be  nothing  whatever  left  for  the  insured,  even  if  he  had  carried 
that  policy  for  thirty  years.  I  must  say,  to  repeat,  that  that  i«  a 
stumbling  point  with  me. 

MH.  KANKIN.  I  hardly  think  Mr.  Thuma.^  weiu  lu  liiat 
extent,  Mr.  Connnisdoner. 

THE  COMMISSION  KK.  That  is  your  position,  is  it  not, 
Mr.  TJiomas? 

MK.  THOMAS.  I  think  so.  It  may  be  admitting  too  much. 
If  so,  I  would  like  the  privilege  of  withdrawing  the  admission. 
Those  who  may  not  agree  with  me  in  this  statement  of  the 
Companies'  position,  may  not  be  bound  by  what  I  say,  but  that 
is  my  understanding  of  the  position  which  the  Companies  assume, 
and  is  certainly  the  position  that  the  Companies  that  I  am  repre- 
senting assume. 

THE  COMMISSIONED.  Take  that  question  to  yourself. 
Mr.  Rankin.  I  understand  that  at  the  end  of  three  months  after 
forfeiture,  no  option  having  been  exercised  by  the  insured,  his 
rights  are  absolutely  foreclosed  against  the  Company,  notwith- 
standing he  has  paid  p'remiums  for  twenty  years.  Is  that  your 
position? 

MR.  RANKIN.     Not  at  all,  sir. 

THE  COMMISSIONER.     How  will  you  overcome  that? 

MR.  RANKIN.  In  my  opinion,  this  statute  requires  that 
every  policy  of  insurance,  save  those  of  the  classes  which  are  ex- 
cepted from  the  operation  of  the  statute,  must  contain  one  or  the 
other  of  these  stipulations — not  both  of  thom — it  must  contain 
one  of  them  in  any  event,  and  that  one  must  bo,  so  to  speak,  self- 
acting,  automatic,  as  I  believe  it  has  been  termed.  Every  policy 
must  contain  a  stipulation  whereby  the  Company  agrees,  after 
three  full  payments  have  been  made,  to  give  the  insured  paid-up 
insurance  of  such  an  amount  as  the  reserve  will  purciiase.  or  a 
stipulation  giving  to  the  insured  a  term  policy  for  the  same 
amount  as  the  original  policy,  and  for  such  term  as  the  reserve 
will  purchase,  considered  as  a  single  premium.  And  in  my 
opinion,  whichever  stipulation  is  inserted  must  give  the  right  to 


150 


the  insured  without  the  necessity  of  any  application  on  his  part. 
Fortunately,  so  far  as  the  Company  which  I  have  the  honor  to 
represent  is  concerned,  all  of  its  policies  provide  automatic  in- 
surance of  one  kind  or  the  other.  I  am  right,  am  I  not,  Mr, 
Smith? 

MK.  SMITH.     Yes. 

MR.  THOMAS.  The  policies  of  the  Connecticut  Mutual  are 
automatic  in  that  respect. 

MH.  liANKIN.  But  I  understand  that  the  policies  of  none 
of  the  Companies  contain  a  stipulation  giving  to  the  insiued 
what  we  call  "extended  insurance."  Most  of  them  provide  for 
paid-up  insurance  without  application  on  the  part  of  the  insured. 
Our  policies  all  contain  that  provision.  A  few  of  the  Companies, 
I  should  take  it  from  what  I  have  heard,  do  not  provide  for  auto- 
matic insurance  of  any  kind,  but  make  the  issuing  of  a  new  policy 
in  lieu  of  the  originaJ  depend  upon  the  application  of  the  insured 
for  the  new  policy  within  a  specified  length  of  time.  I  desire  to 
be  distinctly  understood  as  asserting  that  so  far  as  -our  policies 
are  concerned,  they  do  not  require  any  application  from  the  in- 
sured for  a  new  policy.  They  give  him  the  new  paid-up  policy 
without  his  request;  but,  of  course,  he  must  surrender  the  old 
policy.  I  must  say  that  I  cannot  think  that  Mr.  Munsell,  in 
introducing  this  bill  in  the  Legislature,  nor  the  Legislature  in 
passing  it,  could  have  intended  that  the  policy  should  contain 
both  of  these  stipulations. 

THE  COMMISSIONER.  I  do  not  want  to  interrupt  you, 
Mr.  Rankin,  but  I  want  to  know  your  position  in  that  regard. 

MR.  RAXKIN.  I  am  pleased  to  be  interrupted,  because  we 
are  trying  to  get  at  the  right  and  proper  construction  of  this 
statute,  and  you  are  entitled  to  any  information  we  can  give  you. 

There  are  certain  rules  for  the  construction  and  interpretation 
of  statutes,  which  should  always  be  borne  in  mind.  Thus 
every  provision  of  the  Codes  of  this  State  is  to  be  liberally  con- 
strued, with  a  view  to  efEect  its  objects  and  to  promote  justice. 
Where  a  section  of  the  Code  is  capable  of  two  interpretations, 
from  one  of  which  good  and  beneficial  results  may  follow,  and 
from  the  other  less  beneficial  results,  or  results  which  entail  hard- 
ship and  injustice,  that  construction  will  be  adopted  which,  while 


i:»i 


it  allects  tliu  ubji'L-is  oT  iIr-  law.  \vui-l<s  injury  and  injiistk-e  to 
none. 

I  invoke  these  principles  of  construction,  first  in  their  applica- 
tion to  the  inquiry  whether  every  policy  must  contain  a  double 
stipulation,  or  whether  the  statute  is  satisfied  if  either  one  or  the 
other  be  inserted  in  the  policy. 

The  object  of  this  statute  is  to  prevent  the  forfeiture  of  the 
rights  of  the  insured  after  he  has  paid  three  annual  premiums, 
and  to  require  the  Company  to  devote  the  reserve  wliich  has 
l>een  collected  from  the  insured  to  the  latter's  benefit,  in  the  way 
of  insurance. 

Now,  if  there  must  be  in  every  policy  an  automatical  stipula- 
tion for  extended  insurance,  and  also  a  stipulation  for  paid-up 
insurance  on  demand,  what  is  the  result? 

This:  Whenever  a  policy  lapses  for  non-payment  of  a  pre- 
mium, the  Insurance  Company  must  write  and  deliver  to  the 
insured  a  new  policy  of  insurance,  for  such  a  term  as  the  reserve 
will  purchase.  You  will  observe  that  the  statute  does  not  re- 
quire the  sun-ender  of  the  old  policy.  It  not  only  allows  the 
insured  to  retain  the  old  policy,  but,  indeed,  he  must  retain  it, 
because  the  statute,  according  to  this  interpretation,  gives  the 
insured  the  right  within  three  months,  to  demand  a  paid-up 
policy,  and  to  get  it,  he  must  surrender  the  original  policy.  You 
will  further  observe  that  the  statute  does  not  require  the  insured 
to  surrender  the  extended  policy  when  he  demands  and  receives 
the  paid-up  policy. 

THE  C0MM1SSI0N1^:R.     What  would  be  the  effect  of  that? 

MU.  RANKIN.  At  all  times  two  policies  would  be  out 
against  the  Company,  both  apparently  valid,  both  subject  to 
assignment,  and  innumerable  inconveniences  and  hardships  to 
the  Company  might  follow.  I  have  stated  the  matter  in  this 
way  in  order  that  you  might  see  that  the  Legislature  could  not 
have  intended  such  an  interpretation  of  the  statute  as  you  have 
intimatcKl.  The  language  of  the  statute,  while  ambiguous,  is  not 
capable  of  such  construction. 

It  such  had  been  the  intention  of  the  lawmakers,  they  would 
undoubtedly  have  provided  for  a  surrender  of  the  old  policy  when 
the  automatically  extended  term  policy  was  issued.  Not  having 
done  so,  the  interpretation  which  you  place  upon  tlie  statute 


152 

would  make  it  possible,  not  only  for  the  insured  to  have  his  ori- 
ginal policy  and  retain  it  after  the  extended  policy  was  issued 
and  delivered  to  him,  but  it  would  enable  him  to  keep  the  ex- 
tended policy  after  he  had  changed  his  mind,  or  for  the  period 
of  three  months,  and  then,  by  an  application  to  the  company, 
require  it  to  issue  to  him  a  paid-up  policy  in  lieu  of  the  original 
policy.  The  latter  he  would  be  requi'red  to  surrender,  but  the 
statute  does  not  require  him  to  surrender  the  extended  policy. 

THE  COMMISSIONER.  Ju.«t  state  that  again,  Mr.  Eankiu. 
I  do  not  quite  understand  you  there. 

MR.  RANKIN.  If  the  insured  concluded  within  the  three 
months  to  have  a  paid-up  policy  in  lieu  of  the  original  policy,  he 
could  surrender  the  original  policy,  as  the  statute  requires,  keep 
the  extended  term  policy,  which  the  statute  does  not  require  him 
to  surrender,  and  get  a  new  paid-up  policy  in  addition  to  the  ex- 
tended term  policy. 

THE  COMMISSIONER.  That  is  not  my  position  nor  my  un- 
derstanding of  the  matter. 

MR.  RANKIN.  But  that  is  what  would  follow  if  the  interpre- 
tation wliich  you  place  upon  the  statute  is  correct. 

THE  COMMISSIONER.  Do  not  misunderstand  me.  I  say 
that,  if  he  once  takes  an  extended  term  policy,  he  is  estopped 
from  taking  a  paid-up  policy. 

MR.  RANKIN.  But  if  the  extended  term  policy  is  issued  au- 
tomatically, that  is,  without  any  application  on  the  part  of  the 
insuTcd,  the  statute  gives  him  three  months'  time  in  which  to 
demand  the  paid-up  policy. 

THE  COMMISSIONEJR.  Yes,  but  you  see  the  policy  is  issued 
in  lieu  of  the  other  and  accepted  by  the  insured  under  the  con- 
tract. 

M"R.  RANKIN.  What,  then,  is  the  duty  of  the  eomp.iny  under 
your  co'n&tructioai  of  the  statute?  The  duty  of  the  Company, 
as  soon  as  the  old  policy  lapses  for  non-payment  of  a  fourth  an- 
nual premium,  is  to  write  the  insured  an  extended  term  policy 
for  the  amount  of  the  old  policy  and  send  the  extended  term  poli- 
cy to  the  insured,  because  it  is  not  of  any  use  unless  it  is  deliv- 
ered. The  compiany  has  got  to  send  that  policy  to  the  insured 
and  to  see  that  it  reaches  him,  in  order  to  comply  with  your  un- 
derstanding of  the  law.    Now,  understand  that  the  statute  does 


153 

not  say  tliat  tlic  insured  shall  surrender  to  the  company  the  aid 
policy  when  the  extended  terai  policy  is  issued  to  the  insured. 
The  statute  is  ahsohitely  silent  upon  that  point. 

^IR.  THOMAS.  Jle  must  keep  it,  because  it  is  by  virtue  of 
that  first  contract  that  he  is  entitled  to  paid-up  insurance  if  he 
elects  to  take  it. 

.Mil.  K.WK  l.\.  1  am  statiing  these  tinngs  for  the  puq)ose  of 
showing  you,  ^Ir.  Commissioner,  that  the  interpretation  which 
you  give  to  the  statute  could  not  have  been  that  which  the  legis- 
lators intenrled.  Because,  if  the  law-makers  had  so  intended, 
they  would  then  have  sairl,  '"upon  the  receipt"  of  this  policy  for 
extended  insurance,  the  insured  shall  "surrender  the  original 
policy."  The  statute  does  not.  however,  say  anything  of  that 
kind.  It  imposes  no  obligation  upon  the  policy-holder  whatso- 
ever to  surrender  the  original  policy,  but  it  does  impose,  accord- 
ing to  your  construction,  an  obligation  upon  the  company  to  im- 
mediately issue  to  the  insured  a  new  extended  policy,  and  deliver 
it  to  him.  and  then  [)ermil  him  to  keep  botlv  policies,  without  ex- 
ercising any  option  on  his  part,  for  three  months,  at  which  time 
he  may  do — what?  At  the  end  of  that  time,  or  before,  if  he  so 
elects,  he  may,  according  to  your  interpretation  of  the  statute, 
surrender  ihe  original  policy  and  demand  a  paid-up  policy.  The 
statute  does  not  say  he  shall  deliver  the  second  policy  back  to 
the  company,  but  merely  that  he  shall  delivor  the  original  policy. 
Do  I  nutkc  my  ])Osition  clear? 

TUK  C'OMMJSSIOXER.  I  understand  you,  but  where  I  do 
not  agree  with  you  is,  it  is  my  view  that  if  a  man  accepts  a  policy 
of  extended  insurance,  he  would  be  estopped  from  exercising  the 
other  one  of  the  alternatives,  and  taking  the  paid-up  insurance. 
MR.  KANKIX.  But  if  the  extended  term  policy  is  to  l>e  is- 
sued antonnitically  and  at  once,  upon  the  old  policy  lapsing,  then, 
according  lo  the  language  of  the  statute,  the  insured  has  three 
months  in  which  to  demand  a  paid-up  policy.  Of  course,  it  is  not 
l)robable  that  the  comi)anies  will  issue  a  second  policy  without 
the  surrender  of  the  origimil.  but  if  your  interpretation  of  the 
statute  is  correct,  the  companies  have  no  discretion  in  the  matter. 
What  I  say  is,  that  the  interpretation  which  you  place  upon  the 
statute  cannot,  in  my  judgment,  be  the  correct  interpretation,  be- 
cause the  legislators  never  intended  such  results  to  follow  as 
would  follow  from  that  interpretation. 


154 

\n  the  next  place,  let  me  call  ynuv  attention  to  this  fact:  that 
in  this  Act.  the  (/injunctives  are  always  used,  not  the  conjunctives. 
You  will  find  here  the  words  "either"  and  "or,"  which  are  hoth 
words  disjunctive  in  character,  and  which  indicate  an  alternative. 
Moreover,  remember  that  the  expression  in  the  statute  is  "a  stipu- 
lation.'" not  "stipulations."  If  there  were  two.  the  only  appro- 
priate language  would  be  "stipulations,"  and  not  "a  stipulation." 
Tt  is  well  known  among  insurance  men  and  among  lawyers  what 
a  stipulation  in  a  policy  of  insurance  is.  A  stipulation  covers  a 
specific  thing,  and  not  several  things.  "'A  stipulation"  would 
have  to  cover  two  alternatives  to  carry  out  the  interpretatioQ 
which  you  give  to  the  statute.  It  is  unnecessary  for  me  to  call 
your  attention  to  these  things,  because  I  dare  say  you  have  read 
this  statute  a  great  many  times,  and  you  will  remember  the  use  of 
the  word  "'either,"  and  the  use  of  the  word  "or,"  in  this  connec- 
tion. I  am  perfectly  free  to  admit  that  they  are  both  used  in  a 
rather  ungrammatical  manner.  The  whole  statute  is  not  drawn 
as  it  would  have  been  drawn,  in  view  of  the  knowledge  which 
we  all  have  now,  if  we  were  drawing  a  statute  on  the  subject.  It 
is  full  of  useless  verbiage  and  incorrect  punctuation,  and  the  ar- 
rangement of  its  clauses  is  such  that  often  we  must  transpose 
them  in  order  to  ascertain  to  what  they  relate  or  with  what  they 
are  connected.  I  say  this  with  all  due  respect  to  the  gentleman 
who  drew  the  Ijill. 

MK.  MCNSELL.  If  you  will  allow  me  an  explanation,  Mr. 
Commissioner,  I  would  like  to  say  that  there  are  several  matters 
there  with  which  I  had  nothing  to  do,  the  non-forfeiture  part  of 
the  section  being  added  as  an  amendment  to  another  bill. 

THE  COMMISSIONER.  I  think  we  had  better  now  proceed 
with  the  argument. 

M]^  RANKJN.  1  was  about  to  say,  Mr.  Commissioner,  for  the 
purpose  of  covering  that  point,  I  have  no  (lonl)t  the  Legislature 
tinkered  with  this  Act  until  it  ap])arcntly  meant  not  that  which 
was  originally  intended,  hut  sonu'tliing  very  ditferent;  that  they 
muddled  it  all  up — and  I  am  sometimes  inclined  to  think  that 
laws  are  })urposely  muddled  u\).  Some  legislation  is  of  such  a 
character,  and  our  hiws  and  codes  are  in  such  a  condition,  that 
we  may,  without  imi)i'o])rifty.  say  that  they  have  been  inten- 
tionally muddled  up. 


i: 


>.) 


I  do  not  know,  Mr.  Commissioner,  fhat  I  could  make  my  posi- 
tion upon  these  matters  any  clearer  to  you  thnn  I  have  already 
made  it,  if  I  should  go  on  at  great  length.    I  am  willing,  for  my- 
self, to  concede  that  a  man  might  dxaw  from  this  Act  either  the 
conclusion   which  you  have  drawn,  or  the  conclusion  which  J 
have  drawn,  if  my  conclusion  should  not  be  the  .^amc  as  that  of 
the  other  gentlemen  who  are  here  representing  the  other  compa- 
nies.    1  am  not  disjiosed  to  be  dogmatic  in  this  matter  by  any 
means.    JUit  I  invoke  this  principle:  that  where  a  statute  which 
is  highly  penal  in  its  character,  as  is  this,  and  one  which  works 
such  dreadful  consequences  to  the  parties  interested,  in  case  your 
action  should  be  adverse  to  those  companies:  where  such  a  statut4? 
admits  of  different  constructions,  one  of  which  is  consistent  with 
the  companies'  method  of  doing  business  now,  and  not  to  the 
detriment  of  those  who  are  insured,  and  another  of  which  work- 
untold  hardships  upon  the  companies,  the  Commissioner  should, 
in  the  exercise  of  his  reason,  adopt  that  construction  which  i.s 
consistent  with  the  rights  of  the  parties,  and  not  one  which  de- 
stroys their  rights.    As  T  understand  it.  a  statute  which  works  a 
forfeiture  must  always  be  construed  liberally  for  the  purpose  of 
obviating  the  forfeiture.     It  is  a  well-settled  principle  of  the 
construction  of  all  contracts  and  of  all  statutes,  that,  if  possible, 
that  construction  will  be  adopted  which  avoids  the  working  of  ;i 
forfeiture.     The  result  of  this  investigation,  if  the  view  which 
we  take  is  not  the  correct  one,  will  be  to  work  a  forfeiture  of  thi' 
rights  of  these  companies,  to  destroy  the  work  of  years  and  year^ 
which  these  companies  have  put  into  their  business;  to,  in  a  large 
manner,  impair  their  capital,  and  to  some  extent,  at  any  rate, 
shake  the  confidence  of  those  who  are  already  insured  in  thesi- 
companies.     The  mere  advertisement  of  these  matters,  if  you 
please,  Mr.  Commissioner,  would  have  a  most  detrimental  elfect. 
not  only  upon  the  companies  and  the  insured,  but  upon  the  com- 
munity; and  certainly  no  strained  construction  will  be  employed 
by  you  which  will  work  such  dreadful  results.    On  the  contrary. 
I  think  you  will  l)end  every  effort  to  adopt  that  construct  ion 
which  will  preserve  the  rights  of  these  companies,  which   will 
not  shake  the  confidence  of  the  insured  in  their  companies,  and 
which  shall  not  bring  any  bad  con^quences  on  this  community. 

1  invoke  another  rule  of  construction:  where  a  statute  has  al- 


i5«; 

ways  received  a  particular  constniction,  and  where  riglits  have 
grown  u])  under  such  construction  of  the  statute,  that  construc- 
tion will  not  be  interfered  wilh.  unless  there  be  a  very  grievous 
case  calling  for  an  interference.  As  I  understand  it,  for  nearly 
twenty  years  the  eompanieti  have  proceeded  to  write  policies  in 
accordance  with  the  construction  of  the  statute  for  which  I  now 
comtend,  a  coaistruetion  which  has  been  at  least  tacitly  agreed  to 
by  all  the  Oonnnissioners  who  have  preceded  you.  That  ought 
to  be  of  very  considerable  influeoice,  it  seems  to  me,  upon  your 
mind  in  the  determination  of  the  interpretation  which  you  will 
give  this  statute.  Those  who  have  preceded  you  in  the  office  of 
Insurance  Commissioner  are,  in  a  manner,  as  much  courtis  as  you 
-fire,  and  if  the  Supreme  (Jourt  of  this  State  would  be  bound  by  a 
construction  placed  on  a  statute  by  the  Courts  which  had  pre- 
ceded it,  then  so  much  more  should  you  be  bound  by  the  con- 
struction which  your  predecessors  have  placed  upon  this  statute. 

TIIl^:  COMMISSIONEE.  Are  you  not  a  little  faulty  in  your 
argument,  from  the  fact  that  there  has  been  no  construction 
whatevei-  of  this  statute  l)y  previous  Commissioners? 

J\l!f.  ]?AXK1N.  or  coui^e.  1  am  not  advised  as  to  what  af- 
firmative acticjii  has  been  taken,  hut  T  rely  upon  the  presumption 
that  every  officer  does  his  duty.  It  i?  a  presumjition  in  which 
lli(^  hiw  of  this  State  permits  me  to  indulge.  The  presumption, 
therefore,  is  that  your  predecessors  have  done  their  duty,  and, 
therefore,  that  they  have  construed  the  laws  of  this  State  upon 
the  (jucstion  of  insurance,  including  the  statute  under  considera- 
tion, that  they  have  considered  the  character  of  insurance  which 
has  Iki'U  i.«nsued  under  the  various  Acts  upon  the  subject  in  the 
State,  and  that  they  have  ac-ti'd  correctly  under  the  law.  That 
i.s  a  presumption  to  which  T  think  I  am  entitled. 

1^111^  COMMTSSIONP:b\  It  may  Iw  that  my  predecessors 
have  waited  for  complaints  to  come  in  as  to  the  forms  of  policies 
issued,  l^he  fact  is  that  no  complaint  has  ever  come  here  to  this 
office,  and  it  has  not  come  before  the  Commissioners  in  any  way, 
and  it  they  have  waited  for  some  complaint  to  come  in.  that 
might  account  for  no  action  being  taken  on  ilicii-  ])art. 

MR.  liANKIN.  That  fact  alone,  that  no  complaint  has  come 
lo  your  f)redecessf)rs  of  the  forms  of  policies  issued,  nor  to  you, 
would  be  an  exceedingly  strong  argument,  if  I  were  in  your  posi- 


157 

tioii.  in  favur  of  nol  disturljinj<  the  present  order  of  thin;:-  If 
for  seventeen  years  no  policy-holder  has  complained  of  the  char- 
acter of  policies  that  have  Ixien  issued,  then  certainly  no  one 
ou^ht  Jiow  lo  lake  action  which  would  tend  not  only  to  disturb 
all  these  ])eo]>Ie,  hut  to  disturb  the  confidence  which  they  have 
in  their  insurance,  and  the  confidence  which  they  have  in  these 
companies,  and  drive  these  companies  out  (as  1  am  informed 
soiiie  of  iluMu  will  be  driven  out)  of  the  State,  and  the  State, 
therefore,  deprived  of  the  good,  if  any,  which  these  companies 
bring  to  it.  1  take  it  in  this  connection,  Mr.  ("ommiissioner,  that 
insurance  is  regajded  as  a  good  thing;  that  the  State  permits 
these  companies  to  come  here  and  transact  business,  because  it 
regards  insurance  as  a  good  thing  for  the  people.  And  I  cannot 
but  regard  it  as  a  dreadful  thing  that  the  thousands  upon  thou- 
sands of  policy-holders  in  this  State  should  see  an  advertisement 
in  the  papers  to  the  elt'ect  that  their  policies  were  not  in  accord- 
ance with  the  law,  and  therefore  the  certificates  of  the  companies 
in  which  they  were  insured  w^ere  revoked.  Just  think  what  the 
result  would  be.  Tliese  people  would  not  understand  the  reason 
wlTicli  you,  .Mr.  Commissioner,  would  give  for  your  action.  They 
would  only  understand  that,  in  some  way  or  other,  their  policies 
were  invalidated:  that  in  some  way  or  other  their  policies  had 
become  void.  l>ecause  the  companies  had  not  complied  with  the 
law.  1  do  not  want  to  be  understood  as  saying  that  that  fact 
would  invalidate  their  policies.  1  am  not  claiming  that  it  would. 
But  it  would  shake  their  confidence  in  their  dun  |K)licies.  and 
people  who  have  been  paying  their  premiums  for  years  and  years 
and  years,  for  the  purpose  of  getting  a  competency  for  their  fam- 
ilie.-^,  would  say,  "Are  we  now  without  any  insurance?  Is  not 
that  the  result  of  tlie  Commissioner's  ruling?""  I  do  not  say  this, 
Mr.  (Jommissioner.  f(ir  I  he  purpose  of  causing  you  to  digress  in 
the  slightest  degree  from  \\  hat  you  believe  to  lie  your  duty.  lUii 
all  of  these  things  should  be  important  elenu-nls  in  your  mind 
in  living  to  detenniiie  the  correct  construction  of  this  statute. 
And  the  construction  should  be  consistent  with  the  acts  of  all 
parties  heretofore.  I  have  but  one  further  consideration  to  pre- 
.sent  to  you.  Mr.  Commissioner,  and  that  applies  to  what  may  l>e 
considered  a  slight  dillerence  between  myself  and  the  gentle- 
men representing  other  comi)anics,  upon  the  classes  of  insurance 


158 

excepted  from  the  opeTation  of  the  statnte.  In  that  respect,  I 
will  be  equally  frank  with  yon,  as  I  have  been  heretofore.  I 
think  tlie  words  nsed  in  the  statute  in  that  connection  are  used 
in  their  ordinary  sense,  in  the  sense  in  which  people  in  general 
would  use  them.  I  believe  that  "paid-up  insurance"  means  just 
what  everybody  outside  of  those  who  are  technically  acquainted 
with  the  subject  Avould  say  is  paid-up  insurance.  Many  of  the 
counsel  present  diifer  from  me  in  that  respect.  But  I  am  unable 
to  come  to  the  conclusion  that  a  policy  which  provides  for  paid- 
up  insurance  in  case  of  default  in  paying  premiums  is  itself 
"paid-up  insurance"  within  the  meaning  of  the  statute.  I  do  not 
think  that  is  a  correct  construction  of  tbe  statute.  I  cannot 
come  to  the  conclusion  that  "paid-up  insurance,"  as  used  in  this 
statute,  means  a  policy  that  contains  a  stipulation  that  upon  de- 
fault being  made  a  paid-up  policy  should  be  issued. 

Moreover,  in  accordance  with  that  legal  disposition  which  a 
lawyer  acquires,  I  desire  to  give  a  meaning  to  every  word  in  this 
statute  which  I  think  will  aid  in  its  interpretation,  and  I  know, 
as  well  as  I  know  anything,  that  the  word  "other"  was  not 
thrown  into  this  statute  without  some  meaning.  I  know  that  it 
did  have  a  meaning,  and  I  do  not  believe  that  it  coiild  have  ap- 
plied to  "other  paid-up  insurance."  I  think  it  relates  back  to  the 
word  which  precedes  it,  and  applies  to  tontine  insurance;  that 
when  it  says  "tontine  or  other  term  insurance,"  it  means  just 
exactly  what  it  says.  In  the  minds  of  ninety-nine  people  out  of 
a  hundred,  tontine  insurance  is  term  insurance.  We  may  quib- 
ble upon  the  definition  of  "term  insurance"  as  we  want  to,  but 
after  all.  all  life  insurance  is  of  two  kinds,  that  which  runs  dur- 
ing the  whole  life  of  the  insured  and  is  payable  only  at  his  death, 
and  that  which,  from  some  cause  or  other,  has  a  period  short 
of  death — either  a  fixed  term,  or  a  term  at  the  end  of  which 
something  else  is  to  be  done,  some  option  exercised,  converting 
the  policy  into  a  jjolicy  of  another  kind,  or  even,  if  you  please, 
continuing  it  as  a  policy  of  the  same  kind.  l)y  the  application  of 
certain  reserves  or  of  a  certain  surplus,  to  the  carrying  on  of  tlie 
policy.  Every  ])olicy  falls  within  otic  or  the  other  of  these 
classes. 

MK.  McCUTCIlEN.  Before  you  close.  Mr.  Eankin,  I  would 
like  to  ask  you  a  question,  if  I  may. 


159 

MR.  KANKIN.    Certainly. 

MK.  McC'UTCIlKiSr.  Suppose  you  issue  an  ordinary  life  pol- 
icy, wilh  ;i  i)rovision  tliat  after  threo  annual  premiums  have 
been  paid,  the  policy-holder,  in  the  event  of  lapse  after  that  time, 
shall  be  entitled  to  n  paid-up  policy? 

MK.  THOMAS.    That  is,  automatic. 

MR.  HANK  I  y.    Provided  he  does  not  choose  something  else? 

Ml?.  ]\I(('l7rC'U]']X.  Under  the  contract,  as  I  have  given  it, 
have  you  a  specific  contract  for  paid-up  insurance? 

MK.  IJANKIX.  Provided  the  policy-holder  does  not  choose 
something  else,  yes. 

MR.  jMcCUTCIIKN".  That  is  nor  a  paid-up  policy,  is  it,  at  the 
time  it  is  issued? 

MK.  PtANKIN.    No,  sir. 

MK.  McCUTCHEN.  Tt  is  not  paid-up  insurance  at  that  time, 
is  it? 

MK.  KAN  1\  I N.    \().  I  should  say  not. 

MK.  Mc(JU'JXTIKN.  Unless  you  have  a  specific  provision  in 
that  eonitract  for  paid-up  insurance? 

MK.  KAXKIX.  That  is  true,  the  policy  was  not  a  p&id-up 
policy  when  originally  issued.  It  was  an  ordinary  policy,  wliich 
contained  a  stipulation  giving  to  the  insured  a  paid-up  policy 
in  certain  events. 

MK.  Mc(  UTCIIEN.  How,  then,  can  you  possibly  give  to  the 
term,  "paid-up  insurance,"  the  construction  which  yon  do? 

MK.  KAXKIX.  Because,  in  my  judgment,  the  term,  "paid-up 
insurance,'"  is  used  by  the  statute  in  two  places  in  entirely  dif- 
ferent senses.  I'hat  is  to  say,  paid-up  insurance  as  contained 
in  the  proviso  or  exception  to  this  statute,  means  that  kind  of  in- 
surance, which,  in  its  inception,  is  paid  up  in  full.  In  the  other 
place,  '"paid-up  insurance"  means  what  you  gentlemen  contend 
that  it  meaTis,  thait  is,  that  at  the  occurrence  of  a  default,  there 
shall  1)1'  I  lien  issued  a  policy  which  is  paid-up  to  the  extent  of 
what  its  reserve  accumulated  at  the  time  of  the  default,  consid- 
ered as  a  single  premium,  would  i)urcha.^e. 

MK.  McCUTClIKX.  The.  expression  there  is  not  "paid-up 
insurance,"  but  "paid-up  policy." 

MK.  KANKIX.  That  is  the  same  thing.  Policy  and  contract 
are  the  same. 


160 

ME.  ^I((  r'lH'll  I-;\.  1  would  like  to  ask  you  another  ques- 
tion. 

M]\.  KAN  KIN.     Have  I  answerod  your  first  question? 

MR.  THOMAS.    Not  satisfactorily." 

ME.  EANKIN.    Have  I  made  myself  clear? 

MR.  McCUTCHKX.  I  luiiderstaiid  your  position,  yes.  As- 
suming now  that  this  statute  rec[uiTes  that  every  contract  of  in- 
surance which  does  not  call  for  a  tontine  policy,  a  term  policy, 
or  a  paid-up  policy,  shall  contain  a  stipulation  that  upon  the 
payment  of  three  annual  premiums,  if  the  policy-holder  shall 
fail  to  pay  any  more  premiums,  that  he  shall  be  entitled  to  a  terra 
policy,  or  to  a  paid-up  policy.  How  do  you  claim  that  the  poli- 
cies which  your  company  issues  comply  with  this  section  of  the 
coder 

ME.  EAXKIX.  I  say  it  only  reiiuires  one  of  those  things; 
one  or  the  other,  but  not  both.  And  all  of  the  companies,  Mr. 
Commissioner,  have  purstied  the  only  course  they  should  pursue 
in  that  regard. 

ME.  TH O:\rAS.  Xot  that  they  should;  the  only  one  they 
could. 

MJ{.  EANKIN.  I  mean  that  in  their  policies  they  have  exer- 
cised this  right  of  giving  automatically  issued  paid-up  insurance. 
I  doubt  if  they  could  give  automatic  extended  insurance,  with  a 
stipulation  also  for  paid-up  insurance,  unless  the  policies  were 
successively  surrendered.  I  do  not  see  how  they  could  run  the 
risk  of  there  being  two  policies  ottt  at  the  same  time.  Bttt  thiey 
have  provided  that  they  will  issue  paid-up  insurance  automati- 
■fraily,  on  surrender  of  the  original  policy,  and  thereafter  if  the 
insured  desires  to  have  extended  term  insurance,  they  give  him 
that  privilege  upon  application.  I  reverse  what  you  claim  to  be 
the  pro])ci-  construction  of  the  statute.  I  agree  thoroughly  with 
.Ml-.  Tlioin;i>  ill  this,  tluil  this  law  does  not  require  that  both  of 
thes-e  stipulations  Ik-  put  into  the  ]iolicy.  hut  that  either  one  of 
them  is  sufficient.  The  use  of  the  words  "either"  and  "or,"  and 
the  word  "stipulation"  instead  of  "stipulations,"  makes  it  conclu- 
sive to  my  mind  that  it  was  not  the  intention  of  the  framers  of 
the  Act  that  both  of  those  stipulations  should  go  into  the  policy. 

THE  COMMISSIOXEE.  I  understand,  Mr.  Eankin,  that  you 
agree  with  me  in  saying  that  all  contracts  except  those  that  are. 


excepted  by  tin-  statute,  tontine  insurance,  or  other  tenii  or 
paid-up  insurance,  should  have  in  them  either  one  stipulation  or 
the  other.     You  agree  with  nie  to  that  extent? 

MR.  KANKIN.    Yes. 

THE  COMMISSIONKK'.  1  understand  also  that  you  guaran- 
tee to  go  further  tlian  the  .statute,  that  you  give  paid-up  insur- 
ance automatically  y 

:\li:.  1LV\KL\.     Yes,  ?\v. 

THK  COMMISSJONEK.  Under  that,  of  course,  the  policy- 
holder is  not  entirely  shut  out  at  the  end  of  the  three  months 
after  default.  WhetJier  he  makes  application  or  not,  he  gets 
that,  under  your  policy? 

MH.  RANKIN.    He  gets  that,  yes. 

THE  COMAnSSIONER.  That" is  the  distinction  between  Mr. 
Thomas's  companies  and  your  company? 

M\l.  TIlO^fAS.    One  of  my  companies. 

THE  COMMISSIONER.  Well,  whichever  company  it  is— 
the  New  Yoik  (  oiiipany.  Under  the  policies  of  your  New  York 
Company,  at  the  end  of  six  months  after  the  date  of  forfeiture, 
the  policy-holder  is  shut  out  unless  he  makes  demand  upon  you 
for  a  paid-up  policy.  That  is  the  difficulty  here.  I  realize  the 
dangers  to  the  interests  of  the  State.  I  understand  that  the 
companies  here  have  all  said  that  they  do  not  care  to  make  any 
changes  in  fomi  in  future  policies.  I  want  to  say  as  to  what  Mr. 
Rankin  has  sairl.  that  it  se«ms  to  me  the  insurance  companies  are 
at  fault  in  not  going  to  the  Legislature  and  having  the  law  con- 
form to  just  what  is  meant;  make  it  plain,  and  have  it  corrected 
so  that  it  shall  be  so.  I  am  just  as  loath  as  any  Commissioner 
who  has  ever  occupied  the  office  to  injure  the  companies  here, 
or  to  injure  the  State.  But  it  does  seem  to  me  that  the  policy- 
holders have  some  rights  that  these  companies  must  respect,  and, 
if  I  find  it  necessary  to  take  aAvay  their  lioene^os  liy  reason  of  a 
failure  to  resp€ct  those  rights,  T  shall  do  it,  though  I  would  much 
rather  have  it  go  the  other  way.  I  can  see,  Mr.  Rankin,  how  your 
company  is  in  a  much  Itctter  position  than  the  New  York  Com- 
pany of  ^\r.  Thomas.  A  policy-holder  in  your  company  gets 
something  without  the  exercise  of  any  act  on  his  part,  while  in 
the  New  York  Company  represented  by  Mr.  Thomas,  ho  does 
not.  In  my  view  of  it.  the  Legislature,  in  passing  this  statute, 
intended  to  give  to  the  policy-holder  something  without  any 


162 

act  on  his  part.  lu  other  words,  the  Legislature  intended  that  he 
sliould  get  the  value  out  of  his  reserve.  It  seems  to  me  that  the 
intent  was,  that  if  he  did  not  ask  for  anything,  the  company  was, 
in  any  event,  obliged  to  give  him  something.  I  can  see,  as  has 
been  presented  in  the  argument  here,  that  there  is  a  sort  of  loop- 
hole in  this  option  during  the  period  of  three  months.  A  man 
can  allow  his  policy  to  go  during  that  three  months, during  which 
time  he  is  covered  imdeT  the  original  amount  of  his  policy  by  ex- 
tension, and  then  go  around  and  get  a  paid-up  policy.  That 
is  an  argument  that  appeals  to  me  very  strongly.  Under  the  po- 
sition which  Mr.  Thomas  takes,  1  may  be  under  the  necessity  of 
giving  a  construction  to  this  Act  which  will  injure  the  compa- 
nies, unless  I  give  a  decision  which  absolutely  takes  away  from 
the  policy-holders  of  this  State,  outside  of  the  classes  excepted 
in  the  statute,  their  policies  and  all  their  benefits  under  them, 
and  all  they  have  paid,  provided  they  do  not  exercise  an  option 
within  three  months  after  the  date  of  forfeiture. 

Mli.  EANKIN.  Do  you  not  think,  Mr.  Commissioner,  that 
the  purpose  of  this  Act  is  satisfied,  if  automatic  insurance  of  one 
character  or  the  other  is  given? 

THE  COMMISSIONEE.  It  is  satisfied  much  better,  to  my 
mind.  I  might  be  willing  to  carry  a  state  of  facts  like  that  along 
until  we  got  a  chance  to  correct  it  in  the  Legislature.  Of  course, 
if  the  Legislature  did  not  see  fit  to  make  any  modificatioin,  and  I 
retained  my  present  views,  it  might  be  another  matter,  because 
1  undei*stand  that  the  Legislature  has  the  absolute  power  to  re- 
quire both  of  these  alternatives  to  be  put  into  the  policy,  and  to 
require  that  the  insured  shall  have  automatic  extended  insurance, 
unless  he  chooses  to  take  the  other. 

MR.  McCUTCHEN.  The  New  York  Life  Insurance  Com- 
pany is  giving  automatic  extended  term  insurance.  I  called 
your  Honor's  attention  to  that  yesterday. 

THE  COMMISSIONEi^.  I  am  answering  the  arguments 
made  here,  to  some  extent.  I  do  not  agree  with  the  proposition 
that  has  been  advocated  here,  that  the  Legislature  intended  to 
permit  any  kind  of  a  contract  to  be  made  by  the  insurer  with  the 
insured.  We  all  know  that,  while,  as  Mr.  Thomas  says,  the  in- 
surer and  insured  makes  the  contract,  yet  the  contract  is  really 
made  by  the  insurer.  I  do  not  suppose  one  man  out  of  a  hun- 
dred reads  his  policy.    In  fact,  a  man  generally  does  not  see  the 


1(13 

policy  until  it  is  handed  to  him  fully  executod,  and  at  that  time 
the  contract  is  closed.  I  want  to  say  to  you  gentlemen  that  if 
there  is  any  way  in  which  I  can  avoid  the  revocation  of  the  licen- 
ses of  the  compainies,  in  justice  to  myself  and  to  the  rights  of  the 
policy-holders  of  the  State,  I  want  to  do  it.  I  think  Mr.  Rankin 
has  made  a  ver}'  excellent  argument  upon  the  proposition.  And, 
as  1  said  before,  I  think  he  is  a  better  position  than  some  of  tiie 
other  companies  represented  here. 

MR.  RANKIN.  Without  intending  to  in  the  slightest  degree 
cast  any  reflection  upon  any  other  company,  I  want  to  say  that, 
so  far  as  I  am  advised,  every  policy  that  the  Northwestern  Mu- 
tual Life  Insurance  Company  issues  does  contain  a  non-forfeiting 
clause;  that  is,  it  contains  a  clause  which  prevents  the  reserve 
paid  absolutely  lapsing  to  the  company,  and  many  of  the  policies 
provide  insurance  ten  times  more  favorable  to  the  insured  than 
the  statute  requires.  For  instance,  its  ordinary  life  policy  is  one 
which  not  only  gives  absolutely  paid-up  insurance  upon  lapse  af- 
ter three  annual  preiniums  have  been  paid,  but  it  gives  the  pol- 
icy-holder the  privilege  of  cashing  his  policy,  at  a  fixed  price,  or 
of  obtaining  a  loan  upon  it  of  a  fixed  amount,  and  gives  him  the 
right,  also,  to  take  extended  insurance.  If  I  were  going  to  say 
anything  on  the  policy  of  this  law,  I  would  say  that  the  very  class 
of  policies  which  need  protection  most  are  those  which  are  pro- 
tected the  least,  to  wit,  the  tontine  policies.  Tontine  insuranxje 
has  always  been  recognized  as  cut-throat  insurance,  where  in 
many  cases  the  insured  get  nothing.  If  the  Legislature  really 
wanted  to  protect  the  policy-holders,  it  would  protect  those  hold- 
ing policies  of  that  kind.  So  I  say  the  insurance  companies  have 
really  gone  further  in  the  protection  of  the  policy-holders  than 
the  law  requires.  The  truth  of  the  matter  is,  that  all  of  these 
matters  are  better  left  to  competition  than  in  any  other  way. 
Competition  has  made  all  of  these  great  advances  in  the  liberal- 
ity of  insurance  companies  towards  their  policy-holders,  and 
will,  as  time  goes  on,  make  manv  more. 

1  think,  Mr.  Commissioner,  that  that  is  all  that  I  have  to  say. 

THE  COMMISSIONER.  I  think  we  had  better  take  a  recess 
until  two  o'clock. 


A  recess  was  taken  at  this  point  until  two  o'clock  p.  m. 


(M 


AFTEENOON   SESSION. 

TUESDAY,  JANUAEY  18,  1898,  2  P.  M. 

IfR.  RANKIN.     I  would  like  to  ask  Mr.  Smith  a  question 
which  I  omitted  to  ask  him  this  morning. 
THE  COMMISSIONER.    Very  well. 


FURTHER  STATEMENT  OF  CLARENCE  M.  SMITH,  ESQ. 

MR.  RANKIN.  Q.  In  Section  450  of  the  Civil  Code  of  this 
State,  it  is  provided  that  the  reserve  shall  he  computed  by  the 
"American  Experience  Mortality."     That  is  what? 

A.     The  American  Experience  Mortality  tahle. 

Q.  Your  policies,  I  see,  provide  for  the  estimation  of  the  re- 
serve according  to  the  standard  of  the  State  of  Wisconsin.  Be 
kind  enough  to  state  whether  the  standard  of  the  State  of  Wis- 
consin and  the  American  Experience  Mortality  are  the  same? 

A.  They  are  the  same.  Mr.  Clunie  understands  that  as  they 
accept  OUT  valuation  here  of  policies,  the  valuations  required  in 
Wisconsin  and  California  are  identical. 


MR.  BERT.  Before  Judge  Rhodes  proceeds  with  his  argu- 
ment, I  wish  to  state  that  I  have  some  views  that  I  would  like  to 
present  on  behalf  of  the  Union  National  Company.  Will  yonr 
Honor  indicate  to  me  when  you  would  like  me  to  present  them? 

THE  COMMISSIONER.  I  understood  from  you  that  you 
would  be  engaged  three  or  four  days  in  Court.  The  gentlemen 
have  all  presented  the  matter  very  thoroughly.  I  suggest  that 
you  might  present  your  views  in  the  form  of  a  breif. 

MR.  BERT.    Very  well.    Say  within  five  days. 

THE  COMMISSIONER.  Yes.  I  think  the  questions  have 
been  thoroughly  argued  by  all  the  gentlemen. 


165 

ARGUMENT  OF  A.  L.  KJIODES,  ESQ.. 
Attorney  for  the  New  England  Mutual  Life  Insurance  Company. 

MK.  KHODP]S.  All  the  jJ^uposition^i  involved  in  this  matter 
have  been  so  fully  argued  that  it  is  impossible  for  me  to  add  anv- 
thing  of  much  importance.  I  dislike  very  much  to  repeat  what 
another  man  has  said  in  better  words  and  style  than  I  can  do 
myself,  but  I  might  state  some  of  the  propositions  here  involved 
in  my  own  language. 

My  learned  friend  Rankin  urges  that,  as  Section  450  of  tho 
Civil  Code  provides  that  the  Commissioner  may  revoke  the  certi- 
ficate authorizing  a  company  to  do  business  in  this  State,  it  must 
be  strictly  construed  so  as  to  avoid  a  forfeiture.  The  position,  as 
I  would  state  it,  is  that  the  section  must,  if  possible,  be  so  con- 
strued as  to  avoid  a  forfeiture;  that  for  that  })urpose  the  construc- 
tion may  be  strict,  even  technical,  or  k  may  be  liberal.  It  is  the 
constant  effort  of  courts  to  both  construe  and  administer  the  laws 
so  as  to  avoid  forfeitures.  The  revocation  of  the  certificate  is 
virtually  a  forfeiture. 

Your  Honor  very  well  remembers  that  in  your  practice  in  early 
days  there  were  some  (perhaps  not  as  many  as  there  were  ten 
or  fifteen  years  before  you  came  to  the  bar)  attempted  forfeitures 
in  this  city  of  leases  of  importance.  The  law  was  then  gone  over 
thoroughly,  and  it  was  found  in  all  the  earlier  cases  that  the 
courts  held  vei-y  strictly  to  the  doctrine  that,  in  order  to  work  a 
forfeiture,  where  the  provisions  of  law  to  be  complied  with  were 
technical,  the  landlord  must  technically  follow  every  one  of  those 
provisions — he  must  make  his  demand  of  the  rent  upon  the  very 
day  that  it  accrued;  it  was  not  enough  to  make  it  the  day  before 
or  the  day  after,  but  he  must  make  his  demand  upon  the  premi- 
ses, and  on  the  day  upon  which  the  rent  became  due.  at  the  ut- 
termost point  of  time  of  the  day,  so  that  there  would  be  light 
enough  to  count  the  monev.  You  and  I  could  not  understand, 
speaking  from  a  common-sense  standpoint  only,  without  regard 
to  this  rule  of  forfeiture,  why  courts  had  enforced  the  law  so 
strictly  to  avoid  forfeiture;  why  a  party  could  not  demand  his 
money  of  his  tenant  upon  the  street  ten  rods  from  the  house,  or 
why  he  could  not  demand  it  in  the  morning,  or  the  day  before. 
r>ut  that  works  no  forfeiture.  I  say,  then,  that  the  law  is  re- 
quired to  be  so  construed  as  to  avoid  a  forfeiture. 


1()6 

To  give  an  application  (if  tliis  rule  to  a  matter  to  which  I  will 
come  back  hereafter:  The  law  provides  that  the  policy  shall 
contain  a  stipulation  that  the  net  reserve,  with  interest  at  four 
and  one-half  per  cent.,  etc.,  shall  be  applied  either  to  the  pur- 
chase of  a  non-participating  term  policy  for  the  full  amount,  or 
(leaving  out  "written  application")  to  the  purchase  of  a  non-par- 
ticipating paid-up  policy,  payable,  etc.  It  may  be  said,  reading  it 
in  one  sense,  that  this  stipulatioin  is  one  and  entire.  If  your 
Honor  can  divide  that  stipulation,  and  say  that  it  may  mean, 
in  effect,  two  stipulations,  and  that  the  policy  must  contain  one 
of  those  stipulaitions,  you  have  construed  the  law,  then,  as  the 
books  all  say  proceedings  must  be  construed,  and  the  law  must 
be  construed,  and  a  contract  must  be  construed,  for  the  purpose 
of  avoiding  a  forfeiture. 

The  language  is  peculiar  here.  It  is  a  stipulation  that  its  en- 
tire net  reserve  by  the  American  Experience  Mortality,  with  in- 
terest, etc.,  shall  be  applied  either  to  the  purchase  of  non-par- 
ticipating term  insurance  for  the  full  amount,  etc.,  or  to  the 
purchase  of  a  non-participating  paid-up  policy.  Does  that  ne- 
cessarily mean  that  there  shall  be  contained  a  stipulation  to  the 
effect  that  the  insured  shall  have  the  benefit  of  both  of  those 
provisions?  I  think  not.  And  there  are  various  reasons  why  I 
think  not.  A  liberal  construction  would  tend  to  uphold  the  con- 
tinuous acts  of  the  insurance  companies  from  the  time  of  the  pas- 
sage of  the  law  up  to  the  present  time.  It  is  true,  as  your 
Honor  says,  this  question  may  not  have  been  called  to  the  atten- 
tion of  the  Commissioners  in  that  form;  that  there  may  have 
been  no  question  about  it;  and  that,  therefore,  there  has  been 
no  decision  upon  it.  But  the  repeated  performance  of  acts,  pur- 
porting to  be  in  pursuance  of  a  law,  by  those  who  were  called 
upon  to  act  under  it  and  who  were  governed  by  it,  during  a 
series  of  years,  is  recognized  by  the  courts  as  of  very  great  sig- 
nificance, and  as  amounting  to  a  practical  construction  of  the 
law  itself;  and  the  courts  will  not  give  a  different  construction 
unless  the  practical  construction  is  radically  wrong. 

As  an  illustration  of  that.  T  would  refer  to  what  took  place 
in  early  days,  in  relattiom  to  -Tudgc  Dwimelle's  Court — the 
Fifteenth  District  Court.  That  court  was  organized,  as  the 
Legislature    thought,    under    the    Constitution.      I    happened 


k; 


)< 


to  be  a  member  of  the  Legiilatiiie  wlun  those  amendments 
of  1862  were  passed.  I  professed  to  know  wliat  they  meant, 
and  what  they  mtended  to  say,  for  I  was  a  member  of  a 
committee  that  had  often  had  them  under  consideration 
while  they  were  pending  in  the  Legislature.  I  thought  I  knew 
that  it  was  intended  by  the  Legislature  that  this  State  should 
be  divided  up  into  fourteen  districts;  and  that  if  one  district  be- 
came very  populous,  and  another  became  less  populous,  the 
boundaries  of  the  districts  could  be  re-arranged  and  the  counties 
re-distributed  among  the  fourteen  districts.  It  was  said  by  Sen- 
ator McShafter:  '"These  fourteen  districts  will  last  just  as  long 
as  this  Constitution  will  last."  The  Fifteenth  District  was  cre- 
ated by  the  Legislature  in  1864.  Sam  Dwinelle  was  appointed 
judge,  and  proceeded  to  hold  court  in  this  city  and  in  Martinez, 
rendered  scores  of  judgments,  passed  on  all  sorts  of  questions 
relating  to  land  titles,  contracts,  the  rights  of  parties,  etc.,  tried 
criminal  cases,  sent  men  to  the  penitentiary  and  executed  others. 
Then  came  a  party  before  the  Supreme  Court  who  said  (I  think 
it  was  in  an  ejectment  case):  "We  object  to  this  judgment  be- 
cause the  court  has  no  jurisdiction,  because  there  is  no  such 
court."  What  did  the  court  do?  J'^rom  my  own  standpoint,  of 
course,  the  answer  was  that  under  the  Constitution  there  was  no 
such  court.  From  the  standpoint  of  common-sense  and  the  ad- 
ministration of  justice  and  the  transaction  of  business,  and  in 
consideration  of  the  results  and  consequences,  which  we  have 
here,  the  court  upheld  the  Act.  Why  not?  That  was  a  practical 
construction  of  a  provision  of  the  Constitution. 

Here  are  scores  of  these  companies  that  have,  each  of  them, 
been  insuring  the  lives  of  hundretls  and  possibly  thousands  of 
men  in  this  State.  If  the  policies  of  the  New  England  Mutual 
Life  Insurance  Company,  which  I  represent,  or  of  the  New  York 
or  other  companies,  are  void,  that  is  to  say,  if  they  are  of  such 
a  character  that  your  Honor  will  be  called  upon  as  a  Commis- 
sioner to  revoke  the  certificates  of  the  companies,  would  you  not 
therol)y  declare  that  the  revocation  was  made  because  they  had 
issued  policies  that  were  illegal?  If  illegal,  are  they  not  invalid? 
Are  not  some  grave  consequences  to  come  from  that?  T  do  not 
undertake  to  say  that  the  assured  would  or  could  not  recover 
the  money  they  had  paid,  or  recover  upon  their  policies.     In 


1G8 

view  of  tlie  consequences  llial  may  flew  from  the  constructio'n 
thai  the  section  provides  tor  one  stiiJiilatioTi,  consisting  of  two 
members,  is  not  your  Honor  not  only  Justified,  but  required,  to 
hold,  jf  possible,  that  the  section  provides  for  two  stipulations, 
either  one  of  which  may,  at  the  election  of  the  parties,  be  in- 
serted in  the  policy?  If  the  policy  does  not  comply  with  the  law, 
is  it  valid?  And  shall  we  thereby  not  only  'revoke  the  licenses 
of  tiiese  companies  and  send  them  out  of  business,  but  also  say  to 
them,  indirectly  if  not  directly,  these  policies  that  have  been 
issued  by  you  have  no  validity? 

Section  76  of  the  law  of  Massachusetts,  adopted  in  1894,  is 
as  follows: 

"No  policy  of  life  or  endowment  insurance  hereafter  issued 
"by  any  such  company  shall  become  forfeit  or  void  for  non-pay- 
"ment  of  premium  after  two  full  an>niial  premiums,  in  cash  or 
"note,  or  both,  have  been  paid  thereon;  but  in  ca&e  of  default 
"in  the  payment  of  any  subsequent  premium,  then,  without  any 
"  further  sti]iulatio'n  or  act,  <uch  ]>olicy  shall  l>e  binding  upon 
"the  comjjany  for  the  amount  of  paid-up  insurance,  which  the 
"  then  net  value  of  the  policy  and  all  dividend  additions  thereon, 
"  computed  by  the  rule  of  section  eleven,  less  any  indebtedness 
"'  to  the  company  on  account  of  said  policy,  and  less  the  surren- 
"' der  charge  provided  therein,  will  ]nirchase  as  a  net  single  pre- 
"  mium  for  life  or  endowment  insurance,  maturing  or  terminat- 
"  ing  at  the  time  and  in  the  manner  provided  in  the  original  pol- 
"  icy  contract." 

This  is  a  provision  that  all  policies  shall  have  that  effect,  with- 
out requiring  the  provision  to  be  written  in  them.  Suppose  that 
a  ])o]icy  should  be  issued  by  the  New  England  Mutual,  which 
would  attempt  on  its  face  to  exclude  it  from  the  operation  of 
Section  76,  what  would  be  the  result?  What  would  be  the  con- 
sequence ujion  that  policy?  What  validity  would  that  policy 
have?  Could  it  be  upheld  anywhere?  Would  it  not  be  illegal 
in  the  proper  sense  of  the  term? 

TITK  COMMISSIONER.  You  recognize  the  distinction  be- 
tween a  law  of  the  same  kind  as  the  Massachusetts  law,  and  the 
provision  of  the  California  Code?  Yon  do  not  claim  that  those 
laws  stand  on  the  same  footing? 

Mil.  RHODES.  Not  neeessarily.  To  place  it  on  the  same 
footing,  J  should  have  to  inject  something  into  the  law  to  the 


!«;<) 


effect  that  that  provision  of  tho  law  would  not  be  self-operative. 
Then  it  would  ])e  precisely  the  sajue  as  one  of  our  policies  which 
omits  one  of  those  stipulations  which,  according  to  your  Honor's 
construc-tio]!,  the  law  says  must  be  contained  in  Ihe  policy. 

MK.  ltANJ\IN.    The  practical  effect  would  be  about  the  same. 

THE  COMMISSIONER.  In  other  words,  the  Legislature  of 
Massachusetts  has  made  its  law  one  of  the  constituents  of  the 
contract,  no  matter  what  the  contract  l)etween  the  company  and 
the  assured  may  be.  The  law  of  California  does  not  so  provide. 
It  simply  makes  the  penalty  for  violating  Sectio'n  450  forfeiture 
of  the  right  of  the  company  to  do  business.  It  does  not  affect  the 
validity  of  the  contract. 

MK.  RHODES.  Not  expressly  so.  A  question  woukl  arise 
there  which  I  could  not  pass  on  off-hand;  and  T  am  sure  that 
your  Honor  would  not  attempt,  ofF-hand,  to  determine  wliat 
could  be  said  of  a  contract  that  was  so  vicious  in  its  character, 
that  the  company  must  go  out  of  business  because  it  had  exe- 
cuted it. 

THE  C0MMISSI0NP:R.  Assiinu'  that  I  did  not  act  at  all. 
and  the  company  issiies  a  policy  in  violation  of  this  section,  and 
it  ran  along.  Say  the  policy  was  for  $100,000,  an  amount  large 
enough  to  make  it  important  for  the  compiny  to  make  a  defense. 
Do  you  think  that  whether  I  acted  or  not  would  make  any  dif- 
ference, in  so  far  as  the  compainy  making  any  defense? 

MR.  RHODES.  I  guess  not;  but  your  Honors  decision 
against  the  companies  would  have  an  effect  on  the  companies 
and  the  policy-holders,  ))y  preventing  them  from  taking  the  pol- 
icies in  these  companies  as  they  have  been  doing,  and  cast  doubt 
upon  the  existing  policies. 

MR.  THOMAS.  Suppose  that  the  penalty  for  issuing  these 
policies  contrary  to  the  form  of  law  was  not  so  great  as  to  make 
the  policy  absolutely  void  in  law.  Suppose  the  assured  could 
still  recover  on  the  policy.  Supposing  the  Insurance  Com- 
missioner should  vacate  the  certificate  of  these  companies  to  do 
business.  Would  it  not  follow  naturally  that  a  great  many  of 
our  policy-holders  would  never  come  near  the  .company  to  renew 
their  pi-emiums.  which  course  would  inure  to  tlie  ben<'fit  of  the 
company? 


170 

THE  COMMISSIONEE.  As  far  as  maintaining  an  office  for 
the  collection  of  back  premiums,  they  could  do  that. 

MR.  THOMAS.  Would  it  not  be  the  natural  effect  that  a 
great  many  people  not  going  into  the  matter  carefully  would 
say,  "If  that  company  has  had  its  certificate  revoked,  there  is 
no  use  in  my  paying  any  more  premiums?"  I  think  the  company 
is  going  to  win  by  it. 

MR.  RHODES.  It  would  have  the  same  sort  of  effect  that  it 
would  have  on  one  of  these  savings  banks  if  a  person  should  go 
upon  the  street  and  declare  that  certain  bank  was  not  solvent, 
and  say,  "I  have  $10,000  in  that  bank;  I  will  withdraw  it,  and  I 
will  not  deposit  another  dollar."  The  depositors  would  want 
their  money  and  would  sell  their  bank  books,  and  it  would  injure 
every  one  all  around.    It  would  cause  nothing  but  injury. 

MR.  THOMAS.  In  an  action  of  this  sort,  although  the  com- 
pany might  be  kept  out  of  business  until  wilh'ng  to  comply  with 
the  law,  the  immediate  effect  would  be  an  immense  profit  to  the 
company  by  the  forfeiture  of  a  lot  of  policies.  If  we  were  kept 
out  of  business  for  the  year,  we  would  save  a  great  deal  of  money. 
The  policy-holders  would  give  up.  I  ^am  not  enough  of  an  in- 
surance man.  to  know  what  would  be  the  effect.  Would  not  that 
be  the  effect? 

MR.  SMITH.    It  would  have  that  tendency. 

MR.  THOMAS.  Has  it  not  been  a  fact  that  a  great  many  peo- 
ple have  not  tried  to  keep  up  the  premiums  during  an  inter- 
regnum, and  the  companies  gained  by  it? 

MR.  MUNSELL.  That  is  true.  The  business  ran  down 
badly.  The  year  before  the  bad  laws  were  passed  in  1874,  Mr. 
Wallace  Emerson,  Agent  of  the  New  England  Mutual,  took 
about  415  policies,  but  in  a  few  years  the  business  of  the  com- 
pany ran  down  to  27  policies  in  one  year. 

MR.  LANDERS.  I  know  my  business  tumbled  down  more 
than  one-half. 

MR.  RHODES.  This  sentence  of  Section  450  is,  in  many 
respects,  difficult  of  construction.  My  learned  friend  did  the 
best  he  could  in  drawing  the  section.  I  have  known  a  great  many 
proposed  statutes  to  be  terribly  emasculated  by  amendments,  and 
rendered  so  different  from  the  original  that  it  recalls  the  story 
the  man  who  started  for  St.  Petersburgh  with  his  horse  and  wa- 


171 

gon,  but  said  tliat  he  drove  into  S*t.  Petersbiirgh  in  a  very  dif- 
ferent style  from  what  he  exj)efted,  the  bear  having  seized  his 
lioise  in  the  rear  and  eaten  its  way  into  the  harness.  It  is  very 
diificult  to  construe.  There  are  many  words  in  the  section  that 
are  unaccountable.  Not  only  (he  word  "other,"  but  various  other 
things  are  out  of  order.  The  w-ords  are  so  employed  and  ar- 
ranged that  you  cannot  resort  to  those  rules  of  construction  that 
the  English  Judges  applied  to  the  old  statute  of  fraud,  the  words 
of  which  we're  so  plain  and  exact  that  there  was  but  little  need 
of  construction.  The  terms  were  so  plain  that  the  only  question 
was,  what  was  included  in  a  given  clause?  There  are  very  many 
words  here  whose  presence  is  unaccountable.  Take,  for  instance, 
the  clause,  "Every  contract  or  policy  of  insurance  hereafter  made 
"  by  any  person  or  corporation  organized  under  the  laws  of  this 
"  State,  or  under  those  of  any  other  State  or  country."  Omit- 
ting the  word  "person,"  you  need  nothing  more  than  the  words, 
"  Every  policy  of  insurance  issued  by  a  corporation,"  and  the 
clause  is  complete.  Then  it  goes  on,  "with  and  upon  the  life 
"of  a  resident  of  this  State,  and  delivered  wn'thin  this  State." 
Why  throw  in  the  word  "person"?  All  the  balance  of  the  sec- 
tion says  "company"  and  "corporation,"  and  never  mentions  per- 
son at  all.  Is  a  person  organized  under  the  laws  of  tlie  State? 
Possibly  he  is.  But  the  section  contains  words  that  seem  to  serve 
no  possible  purpose. 

I  would  say  to  my  learned  friend  who  ])articipated  in  the  draw- 
ing of  the  section  that  a  pretty  good  illustration  of  his  fate  is  af- 
forded by  that  of  Charles  H.  Parker,  whom  all  the  old  members 
of  the  bar  well  knew.  He  knew  all  the  street  law  that  anyone 
was  expected  to  know.  He  drew  the  amended  street  law  of  1862. 
Along  about  186-i  and  1865,  the  statute  came  before  the  Supreme 
Court,  and  in  nearly  every  case  of  importance  Mr.  Parker  was 
retained  on  the  side  in  favor  of  the  law  and  the  contractor.  He 
argued  case  No.  1.  He  said:  "This  provision  of  the  law  means 
"so  and  so,  for  I  drew  it  myself."  Then  in  the  next  case,  an- 
other section  came  up  for  construction,  and  he  said,  "I  know 
"  what  was  intended  by  that,  for  I  drew  it  myself."  A 
couple  of  years  passed,  and  there  were  half  a  dozen  cases  every 
term,  and  Mr.  Paxker  came  to  the  conclusion,  at  last,  which  was  a 
very  wise  and  sage  conclusion,  that  among  all  the  members  of 


(( 


172 

the  bar  of  this  city,  he  was  the  cnly  one  who  was  not  sure  of  the 
meaning  of  a  single  clause  in  the  Act. 

This  section  says:  "Unless  specifically  contracted  between  the 
"  insurer  and  the  insured  for  tontine  insurance,  or  for  other  term 
"  or  paid-up  insurance."  I  do  not  know  what  is  the  outcome  of 
the  position  of  my  learned  friend,  Mr.  Rainkin,  upon  that 
clause.  He  scarcely  ever  does  anything  without  a  purpose. 
He  must  have  had  some  purpose  in  that  regard.  But  I  would 
say  that  if  the  definition  which  his  witness  gives,  opposed  as  it 
is  to  the  definition  of  all  of  the  others  who  have  been  examined 
here  as  actuaries  and  experts,  be  the  correct  one,  why  should 
there  have  been  used  in  this  section  of  the  statute  the  language 
"  tontine  insurance,  or  other"?  If  tontine  means  "term"  insur- 
ance, the  section  should  simply  have  said,  "unless  specifically 
"  contracted  for  term  or  paid-up  insurance."  "Tontine"  should 
have  been  omitted.     They  cannot  both  be  properly  there.     If 

tontine  insurance"  does  mean  "term  insurance,"  then  it  is  sur- 
plusage, as  useless,  as  annoying,  and  as  unsatisfactoTy  as  the  word 
"  other"  when  we  give  "tontine"  the  meaning  which  we  assign 
to  it  by  the  aid  of  our  experts. 

MR.  RANKIN.  You  say  there  was  no  occasion  for  the  use 
of  the  word,  "term"? 

MR.  RHODES.    No,  the  words  "tontine,"  or  "other." 

MR.  THOMAS.     Strike  out  "tontine,"  or  "other." 

MR.  RHODES.  If  that  definition  be  the  correct  one,  the 
clause  should  have  been,  "unless  specifically  contracted  for  term 
"  or  paid-up  insurance,  shall  contain  a  stipulation,"  and  so  on. 

I  do  not  think  it  worth  while  to  comment  on  the  phrase  "term 
"  insurance."  We  all  agree  upon  that  except  that  Mr.  Smith, 
as  an  expert,  makes  it  comprehend  more  in  idea,  not  in  desig- 
nation, than  the  others  do. 

MR.  RANKIN.  You  do  not  understand  Mr.  Smith's  defini- 
tion to  make  "tontine"  and  "term"  co-extensive  terms? 

MR.  RHODES.  No.  In  idea,,  "tenn"  would  include  "tontine." 
That  is  to  say,  analyzing  it,  you  might  say,  mathematically  or 
philosophically,  "term"  would  include  "tontine,"  because  there 
is  a  term  in  tontine.  I  am  speaking  of  that  as  showing  how  badly 
this  section  was  drawn,  and  how  uncertain  are  its  terms. 

The  whole  net  reserve,  "by  the  American  Experience  Mortal- 


173 

"  ity,"  is  the  laiigiiap:e.  I  do  not  know  that  I  am  justified  in 
commentinf,'  upon  that  phrase.  What  does  tliat  mean?  Stand- 
ing by  itself,  it  does  not  mean  anything.  Turn  to  the  Massachu- 
setts law,  and  you  will  find,  in  Section  11,  when  you  are  a.scer- 
taining  the  present  value  of  the  policy  of  insurance,  that  it  is 
calculated  upon  the  basis  of  the  "combined  experience  or  actu- 
aries' table."  There  is  no  tabh  here.  What  is  "American  Ex- 
perience Mortality"?  You  Honor  has  to  interpret  this  law.  If 
you  find  a  term  in  the  section  which  is  of  no  significance  at  all, 
you  are  bound  either  to  reject  it,  or,  if  so  inter^voven  with 
the  meshes  of  all  tbe  rest  of  the  section  as  to  vitiate  it  all,  then 
to  reject  the  whole  section.  If  there  is  to  be  no  reserve  which  is 
to  be  used  for  the  purpose  of  paying  up  a  term  insurance,  or  a 
fuJl  paid-up  policy,  etc.,  except  the  reserve  according  to  "Ameri- 
can Experience  Mortality,"  you  have  no  reserve.  You  have 
nothing  to  be  applied  to  the  payment  for  the  new  policy,  and  it 
is  as  useless  to  make  a  provision  about  a  stipulation  in  relation 
to  the  application  of  such  a  reserve  as  it  would  be  to  make  a  pro- 
vision about  the  storing  up  of  moonshine,  which  of  itself  has 
nei'ther  light  nor  heat.  I  do  not  know  what  you  can  do  with 
that  clause,  because  this  whole  thing  was  designed  for  the  pur- 
pose of  securing  to  the  policy-holders  the  benefit  of  a  reserve. 
The  section  has  taken  on  itself  to  say  what  reserve  is,  and  has 
taken  on  itself  to  say  what  shall  be  the  rate  of  interest  on  that 
i-eserve.  How  do  you  ascertain  that  reserve?  It  does  not  appear 
here  that  any  Company  has  a  reserve.  It  may  be  presumed  that 
money  has  been  paid  in  on  policies  more  than  necessary  to  meet 
the  ordinary  requirements  for  expenses  and  losses  in  the  way  the 
Companies  are  managed  under  the  improved  system  of  insurance. 
But  this  section  provides  that  the  reserve  is  to  be  computed 
according  to  the  "x4.meriean  Experience  Mortality."  You  might 
as  well  say  it  was  to  be  computed  by  the  rule  laid  down  in  any 
non-existing  thing,  or  in  Shelley's  case. 

THE  COMMISSIONER.  Would  you  not  answer  that  by 
saying  that  was  a  matter  of  which  the  Commissioner  ought  to 
take  judicial  notice — that  there  is  a  reserve  in  ever>-  policy  under 
the  law  of  the  State?  You  are  familiar  with  the  other  provisions 
of  the  law,  which  require  a  Company,  in  order  to  conduct  its 
business,  to  keep  on  hand  a  i-eserve  according  to  thesie  tubles  of 
mortality.     The  only  tiling  you  can  point  out  is  the  fact  that  the 


174 


Legislaiture  left  out  the  word  "table."  Among  Ineurance  men 
it  is  acknowledged,  and  l)y  the  Insurance  Commissioners  of  the 
United  States  it  is  genexally  known,  that  each  policy  has  what  is 
called  a  reserve,  and  that  reserve  is  estimated  according  to  these 
tables  of  mortality.  I  suppose  that  is  a  matter  of  which  I  ought 
to  take  notice. 

ME.  RHODES.  Very  likely,  if  the  siection  contained  the 
requisite  words.  You  have  power  to  forfeit  the  right  of  these 
Companies  to  do  business  here  if  they  fail  to  insert  in  their  poli- 
cies a  certain  stipulation,  that  depends  upon  a  provision  of  the 
Code,  wliich  requires  the  computation  of  a  reserve  on  a  basis 
which  is  no  basis  at  all.  Your  Honor  will  agree  with  us  in  say- 
ing that  the  Legislature  will  not  compel  a  party  to  do  an  idle 
thing;  it  will  not  compel  a  company  to  put  into  a  policy  a  stipu- 
lation wliich  does  not  mean  anything  after  it  is  inserted.  I  do 
not  know  that  the  argument  is  valuable,  but  I  ani  applying  the 
rules  of  law  which  prevail  in  the  case  of  an  attempted  forfeiture 
of  a  right. 

I  need  not  comment  on  the  term  "paid-up,"  which  is  men- 
tioned in  the  exception  stated  in  the  section;  my  friends  have 
given  their  ideas  upon  that  subject,  and  I  fully  agree  with  them. 
The  question  would  be  asked:  Why  would  you  attempt  to  except 
from  the  operations  of  the  reserve  feature,  a  policy  which  has  no 
reserve?     But  I  need  not  comment  any  more  on  that  question. 

Do  the  words  of  the  section  require  that  the  stipulation  to  be 
inserted  in  the  policy  shall  contain  both  of  the  terms  mentioned? 
Your  Honor  has  suggested  that  if  the  insured  have  only  the 
leeway  of  three  months  in  which  to  apply  for  the  purchase  of  a 
non-participating  paid-up  policy,  even  after  he  had  been  paying 
the  premiums  for  twenty  years,  he  would  be  very  apt  to  lose  what 
rights  had  accrued  to  him;  that  if  the  Companies  had  the  right  to 
put  either  one  of  these  two  alternative  stipulations  in  their  poli- 
cies, they  would  put  in  them  the  provision  for  paid-up  insurance 
on  demand,  because  the  chances  would  be  greatly  in  their  favor, 
as  the  insured  would  generally  neglect  to  apply  in  time. 

There  are  several  answers  to  that  suggestion.  The  first  one  is, 
that  among  all  the  policies  produced  here,  there  are  none  (except 
one)  that  contain  any  stipulation  for  a  non-participating  paid-up 
policy.     But  they  all  contain  the  first  stipulation — ^for  term  in- 


175 

surance — and  this  action  of  the  Companies  shows  that  they  con- 
strue the  section  as  ])roviding  for  two  alternative  stipulatione. 
Secondly,  if  the  Legislature  takes  it  on  itself  to  say  that  the  only 
way  that  the  insured  could  get  the  application  of  the  reserve  to 
a  non-participating  paid-up  policy  is  by  applying  within  three 
months  and  surrendering  the  old  policy  of  insurance,  all  you  can 
say  about  it  is,  that  the  Legislature  has  power  to  prescribe  the 
l)eriod,  and  might  have  made  it  three  years,  or  three  months,  or 
any  other  period.  And  the  insured  must  abide  by  it,  unless  the 
Company  gives  him  more  liberal  terms  than  does  the  Legislature. 

Section  76  of  the  Massachusetts  law,  which  I  referred  to  be- 
fore, provides,  "Every  such  policy,  after  the  payment  of  two  full 
annual  premiums  thereon" — instead  of  three  years,  as  provided 
in  our  statute — "or  when  by  its  terms  it  has  become  paid-up, 
shall  have  a  surrender  value,  which  shall  be  its  net  value,  less  the 
sun*ender  charge,  and  less  any  indebtedness  to  the  Company  on 
account  of  the  said  policy,  and  its  holders  may,  upon  any  subse- 
quent anniversary  of  its  issue,  surrender  the  same  and  claim  and 
recover  from  the  Company  such  surrended  value  in  cash."  The 
statute  of  Massachusetts  appears  to  have  been  drawn  with  great 
care — with  greater  care  than  is  exhibited  in  our  statute.  The 
manifest  purpose  of  the  pro\Tsions  of  Section  76  is  to  conserve 
the  rights  of  the  policy-holdei-s.  And  yet,  the  policy-holder,  if 
he  wishes  to  get  the  surrender  value  of  the  policy,  must  apply 
upon  the  anniversary  of  its  issue;  and,  clearly,  that  is  more  strict 
against  him  than  the  three  months  given  to  him  by  our  Section 
450  in  which  to  procure  the  non-participating  paid-up  policy. 

A  party  is  supposed  to  know  the  law.  Your  Honor  says  those 
who  insure  do  not  know  the  law  as  well  as  the  insurers.  This  is 
a  very  simple  and  plain  proposition,  as  he  can  go,  upon  any  sul>se- 
quent  anniversary  of  its  issue,  and  surrender  the  policy  and  re- 
ceive its  cash  value. 

THE  CO]\IMISSIONER.     He  could  do  that  under  our  law. 

MR.  RHODES.     No. 

THE  COMMISSIONER.  He  would  have  to  take  it  in  three 
months,  or  never  get  any  anniversary.  In  Massachu>etts  he  gets 
one  ever}"^  year. 

MR.  Tlio^rAS.  All  of  the  policies  in  the  New  York  Com- 
panies give  six  months.  In  that  way  they  follow  the  New  York 
law,  and  are  supposed  to  follow  the  California  law. 


176 

ME.  RHODES.  I  liave  repeated  a  good  deal  that  my  friends 
have  said,  and  I  need  not  say  anything  fuTthei-  upon  the  subject. 
I  will  simply  call  you  Honor's  attention  again  to  the  great  and 
paramount  consideratioii  in  this  matter.  There  has  been  a  prac- 
tical construction  of  tlie  meaning  of  this  section,  as  given  by 
those  who  have  been  brought  in  contact  with  it  for  years.  And, 
although  this  question  may  never  have  been  directly  and  ex- 
pressly presented  to  the  Insurance  Commissioner  before  this 
time,  it  was  always  as  distinct,  from  the  passage  of  the  statute  of 
1880,  as  it  is  to-day.  We  regard  this  acquiescence  in  the  action 
of  the  Companies  in  their  practical  construction  of  the  section, 
as  of  very  great  weight. 

THE  COMMISSIOlSrER.  You  do  not  understand  that  that 
rule  applies  where  there  is  no  decision?  If  this  Department  had 
decided  fifteen  years  ago  a  case  in  which  this  law  had  been  ex- 
pressly considered,  such  decision  might  now  be  binding  upon  this 
Department. 

MR.  RHODES.  It  would  be  worth  a  great  deal  more  if  that 
question  had  been  sc[uariely  presented,  and  considered  and  de- 
cided. But  where  there  has  been  an  aequiesicence  on  the  part  of 
a  Commissioner,  who  is  supposed  all  the  time  to  watch  the  acts 
and  operations  of  these  Companies  for  the  benefit  of  the  policy- 
holders, and  where  the  business  has  been  carried  on  by  the  Com- 
panies in  suieh  a  way,  and  their  policies  are  issued  im  such  a  f  o^rm, 
that  they  make  such  an  application  of  the  reserve,  if  there  be 
one,  as  will  satisfy  the  policy-holders,  and  where  these  questions 
were  as  open  during  all  that  time  as  they  now  are,  I  say  the 
acquiescence  on  the  part  of  the  Commissioner,  although  not  as 
persnasive  as  a  decision  of  the  Supreme  Court  upon  this  subject, 
and  although  not  of  as  much  force  as  a  decision  of  the  Commis- 
sioner, is  still  very  persuasive;  and  a  different  construction 
ought  not  to  be  now  made,  unless  it  be  imperatively  required. 

I  thank  your  Honor  for  the  patience  with  which  you  have 

listened  to  me. 

0 

MR.  McAllister.     I  would  like  to  add  to  the  argument 
which  I  have  already  made  to  your  Honor,  if  I  may. 
THE  COMMISSIONER.     Very  well. 


177 

Fnirriii:i:   AiaiUMEM'   ok    vaaao'vv   MrAu^sTFR. 

ESQ., 

Attorney  i'ur  tlif  lluiiiL'  Life  Insirraiux'  ('<>iii|tan\,  ul  ^cu    York. 

Ml;.  .M(  ALLlSTKi:.  .Mr.  Conimissianer,  on  behalf  of  tho 
Home  Life  Insiirano'e  Conipaiiv,  of  New  York,  T  deeire  first  to 
call  the  attention  of  the  Insurance  ComniissioneT  to  the  fact  that 
no  'advantage  is  taken  of  the  insured  should  he  at  amy  time  after 
the  payment  of  thix"e  annual  premiums,  dctermi-ne  to  discontinue 
the  policy.  The  insured  is  given  a  thirty  or  forty  days'  written 
notice  of  the  falling  due  of  the  premium.  Amongst  other  speci- 
fications, that  notice  contains  the  following: 

"  If  not  paid  to  tliis  corporation  or  its  agents,  named  below,  on 
"  or  before  the  day  it  (the  premium)  falls  due,  the  policy  and  all 
"  payments  thereon  will  become  forfeited  and  void,  except  as  to 
"  the  right  to  a  surrender  value  or  paid-uyj  insurance,  as  provided 
"  for  in  said  policy."  This  calls  the  attention  of  the  insured  di- 
rectly to  the  right  to  a  surrender  value  or  to  paid-up  ineuTance, 
and  therefore  the  contention  that  the  in.^ured.  is  in  ignorance  of 
any  further  right  in  the  policy  is  not  well  founded. 

Again,  we  desire  to  call  the  Commissioners  attention  to  the 
fact  that  any  benefit  that  may  be  derived  from  a  failure  of  the 
insured  to  claim  his  equity  in  the  reserve,  goes  directly  to  the 
policy-holders  of  the  Company,  and  is  distributed  amongst  them 
and  does  not  go  to  the  stockholders  of  the  Company. 

And  we  desire  also  to  submit  what  seems  to  be  a  fair  and 
reasonable  construction  of  the  language  of  Section  4.50,  without 
necessity  of  expert  testimony  of  the  meaning  of  the  words:  a 
construction  that  is  obtained  by  a  simple  consideration  of  the 
grammatical  constrnetion  of  the  sentence.  And  we  submit  that 
if  this  construction  is  really  apparent,  that  it  must  be  the  basis 
of  action  by  the  Commissioner. 

The  stiUute  in  its  simplest  foi-ni  ju-ovides  that  every  i>olicy 
must  contain  a  stipulation,  that  when,  after  three  full  annual 
premiums  shall  have  been  paid,  the  policy  shall  l>ecome  void 
solely  by  reason  of  the  non-payment  of  any  subsequent  premium, 
then  the  entire  net  resen^e  shall  be  applied  either  to  the  pur- 
chase of  ''non-participating  tenn  insurance"  or  of  "a  non-partici- 
pating paid-up  policy,"  "unless  specifically  contracted  between 


178 

the  insurer  and  the  insured  for  tontine  insuiaiice,  or  for  other 
term  or  paid-up  insurance." 

This  last  quoted  clause  containing  a  limitation  is  a  part  of  the 
principal  sentence  and  limits  and  modifies  what  the  statute  re- 
quires to  be  done  by  the  words  of  the  principal  sententce.  The 
question  before  us  is.  What  is  this  limitation? 

This  proviso  clause  recognized  a  freedom  of  contract;  allows 
the  insurer  and  the  insured  to  specifically  eontnact.  If  they  do 
not  specifically  contract,  then  the  stipulation  expressed  in  the 
principal  sentence  is  enforced.  They  may  specifically  contract 
"for  tontine  insurance,  or  for  other  term  or  paid-up  insurance." 
In  this  last  phrase,  "for  tontine  insurance,  or  for  othe'r  term  or 
paid-up  insurance,"  we  note  the  presence  of  the  noun  "insur- 
ance"' appearing  twice  and  limited  first  by  the  adjective  "tontine" 
and  second  by  the  words  "other  term  or  paid-up."  We  note  also 
the  presence  of  a  comma  after  the  first  word  "insurance";  this 
must  denote  an  intention  to  clearly  separate  the  words  "tontine 
insurance"  from  the  remainder  of  the  phrase.  That  such  was 
the  intention,  we  also  submit  the  repetition  of  the  preposition 
"for";  it  is  used  before  the  word  "tontine"  and  again  is  used  be- 
fore the  second  phrase  of  the  clause. 

The  words  "term  or  paid-up"  must  next  be  considered.  We 
find  them  used  in  this  proviso  clause;  we  find  them  separated 
entirely  from  the  other  adjective  of  the  phrase,  "toritine,"  and 
separately  modifying  the  second  word  "insurance."  The  word 
"other"  precedes  the  words  "term  or  paid-up,"  and  signifies  that 
the  words  "term  or  paid-up"  are  to  be  contrasted  with  some 
other  words  denoting  the  same.  In  the  principal  sentence  of 
which  this  proviso  clause  is  a  part,  we  find  the  word  "term"  and 
the  word  "paid-up"  also  used;  and  it  is  only  in  the  principal  sen- 
tence and  in  this  proviso  clause  that  we  find  the  word  "term"  and 
the  word  "paid-up."  It,  therefore,  would  seem  to  be  unneces- 
sary to  go  further  for  the  words  with  which  "term  or  paid- 
up"  axe  to  be  contrasted,  inasmuch  as  we  find  them  in  the  princi- 
pal sentence.  The  attempt  is  made  to  contrast  that  phrase  with 
the  word  "tontine."  Such  a  construction  would  be  forced,  to 
say  the  least,  and  would  require  ;in  exhaustive  examination  such 
as  was  had  before  the  Commissioner  as  to  the  technical  meaning 
of  the  words  used.  The  preponderance  of  the  evidence  was  to  the 
effect  thait  tontine  insurance  was  neither  term  nor  paid-up  in- 


179 


siu'ance.  There  was  soiul  i'.i(k;iue  ihai  uiiLiiie  as  now  used  was 
a  tiijecies  of  tonn  insuiaiue.  But  it  is  iTnnec-essiiry  to  j;o  into  the 
I'vuk'nte.  The  very  i'acl  tliat  these  words  can  be  variously  de- 
tined,  strengtliens  the  position  taken  by  ourselves.  The  inter- 
pretation that  we  urge  is,  to  contrast  the  words  "term  or  paid- 
up"  with  till'  identical  words  that  occur  in  the  princijial  clause 
of  the  same  sentence;  so  that,  if  the  insurer  and  the  insured  have 
specifically  contracted  for  term  or  paid-up  insurance  other  than 
that  term  or  paid-up  insurance  specified  in  Section  450,  then 
the  mandate  of  the  statute  does  not  apply. 


ARGUMENT    OF    E.    S.   PILLSBURY,   ESQ., 
Attorney   for   The   Equitable  life   Assurance    Society   of   the 

United   States. 

Mr.  I'lLLSBURY.  Mr.  Commissioner:  1  represent  The 
luiuitable  Life  Assurance  Society  of  the  United  States.  The 
])Ositi€n  of  this  company  is,  I  think,  practically  the  same  as  that 
of  all  the  other  life  insurance  companies  doing  business  in  this 
State,  except  The  Mutual  Benefit  of  New  Jersey.  We  have 
always  construed  Section  -ioO  to  require  the  stipulation  therein 
specified  to  be  inserted  in  insurance  policies  unless  the  insurer 
and  the  insured  should  specifically  contract  in  the  policy  in  some 
other  manner  or  upon  some  other  ba.-is  or  for  some  other  kind 
of  term  or  paid-up  insurance  which  the  insurer  might  obtain 
after  the  pa}Tnent  of  three  annual  premiums.  In  all  of  our 
])olicies  there  has  always  been  a  specific  contract  for  paid-up  in- 
surance upon  demand  of  the  insured  within  six  months  after 
non-payment  of  the  premium,  and  this  stipulation  we  have  con- 
sidered was  all  that  the  statute  of  California  required  of  us,  and 
that  our  policies  have  been  in  strict  conformity  with  the  terms 
of  that  section. 

Tf  Section  450  is  not  open  to  our  construction,  but  must  be 
iiiiuri)retcd  in  accordance  with  the  intimations  which  you  have 
given,  then  I  take  it  that  every  company,  domestic  and  foreign, 
save  only  the  Mutual  Benefit  of  ISTew  Jersey,  has  misunderstood 
and  misinterpreted  the  law  and  has  issued  policit>s  in  this  State 
not  in  conformity  with  the  jtrovisions  of  that  section.  There 
seems  to  me  to  be  no  middle  ground.    We  are  either  all  inno- 


180 


cent  or  we  are  all  guilty.  The  excepting  clause  in  this  section 
over  which  the  difterence  of  opinion  has  arisen  either  bears  the 
consti'uction  we  have  given  it,  in  whioh  case  all  of  the  companies 
have,  so  far  as  I  am  informed,  complied  with  its  requirements, 
or  it  should  have  been  construed  in  accordaaice  with  your  opin- 
ion, in  which  event  no  company,  save  the  one  I  have  already 
mentioned,  has  obeyed  its  mandates,  and  all  are  guilty  of  its  vio- 
lation. The  situation  is  therefoTc  critical.  I  feel  convinced, 
however,  that  we  have  not  misunderstood  nor  misconstrued  this 
law,  and  shall  endeavor,  at  the  risk,  to  a  considerable  extent, 
of  repeating  arguments  which  have  already  been  made,  to  pre- 
sent the  reasons  for  my  belief. 

Before  taking  up  the  construction  of  the  language  of  that 
section  it  will,  I  think,  be  well  to  recall  the  history  of  the  times 
when  it  was  passed.  G-reat  assistance  is  often  derived  from  such 
consideration,  and  I  believe  the  present  instance  shows  the  wis- 
dom of  that  jjractice.  It  is  nearly  eighteen,  years  since  Section 
450  was  enacted,  3^et  we  can  all  remember  the  deplorable  con- 
dition into  which  the  life  insurance  business  in  this  State  had 
fallen  at  the  beginning  of  the  year  1880.  Several  years  before 
that  time  the  Legislature  had  passed  a  law  compelling  all  of  the 
companies  to  insert  in  their  policies  a  certain  stipulation  for 
paid-up  insurance;  this  stipulation  provided  that  the  reserve 
should  be  estimated  according  to  the  American  Experience  Rate 
of  Mortality,  with  interest  at  four  and  one-half  per  cent.,  the 
companies  being  allowed  to  deduct  therefrom  a  certain  specified 
surrender  charge.  The  insertion  of  this  agreement- in  the  poli- 
cies was  made  a  sine  qua  nnn  to  the  companies  doing  business 
in  this  State.  No  other  stipulation  was  permitted  and  no  poli- 
cies could  be  issued  or  delivered  within  the  State  which  did  not 
contain  this  stipulation.  The  passage  of  this  arbitrary  law  was 
generally  regarded  as  an  unwiise  act  at  the  time,  and  subse- 
quent events  proved  this  to  be  true.  The  only  domestic  life 
insurance  company  doing  business  here  was  the  Pacific  Mutual, 
and  that  company  was  then  in  its  infancy.  Practically  all  of 
the  life  insurance  was  written  by  foreign  companies  and  many 
of  the  latter  were  organized  under  the  laws  of  States  which 
compelled  the  companies  to  stipulate  in  the  policies  which  they 
issued  for  the  application  of  the  reserve  to  term  or  paid-up  insur- 
ance upon  basas  different  from,  and  which  conflicted  with,  that 


181 

which  wgs  specified  in  the  Act  of  our  Legislature.  Thue  the 
laws  of  sonic  of  the  States  compelled  the  companies  to  adopt  the 
"Combined  Kxperience  "  or  "Actuaries"  or  some  other  tabic 
of  mortality  in  etstimating  the  value  of  the  res^i-rve;  others  were 
compelled  to  estimate  by  chargin*,'  intei-cst  at  four  per  cent,  or 
some  other  rate;  other  States  prescribed  that  only  a  percentage 
of  the  reserve  should  Ix'  subject  to  the  control  of  the  insured, 
while  in  others  it  was  prescribed  that  a  certain  percentage 
should  be  deducted  as  a  surrender  charge.  As  a  natural  conse- 
quence it  was  impossible  for  some  of  the  companies  to  continue 
in  business  in  the  State  of  California,  and  they,  with  many 
others  which  found  it  extremely  impraetictible  to  go  on,  with- 
drew their  business  entirely  from  the  State,  or  ceased  to  write 
policies  here,  and  the  life  insurance  business,  comparatively 
speaking,  came  to  a  standstill.  The  result,  naturally,  was  great 
injury  to  our  State.  This  condition  of  affairs  continued  up  to 
the  time  that  the  present  law  was  adopted.  The  Bill  was  intro- 
duced with  the  intention  of  relieving  the  situation  by  removing 
the  objectionable  features  in  the  then  existing  law  and  of  |)er- 
mitting  the  foreign  companies  to  come  back  and  renew  their 
business  in  the  State.  The  history  of  the  passage  of  that  Act 
has  been  presented  to  you  at  this  hearing  by  Mr.  Munsell,  who 
drafted  the  I3ill.  ^fr.  Munsell  is  now,  and,  I  understand,  was 
ihen,  the  agent  of  The  J\Iutual  Benefit  Life  Insurance  Company 
of  Newark,  New  Jersey.  Mr.  Muusell's  company  is  the  only  one, 
tlie  policies  of  which  do  not  otherwise  contract  for  term  or  paid- 
up  insurance,  but  have  a  conjunctive  stipulation  precisely  similar 
to  that  mentioned  in  Section  450.  A  determination  of  this 
question  in  accordance  with  our  contention  would,  therefore, 
be  of  no  benefit  whatsoever  to  Mr.  Munsell  or  his  company, 
while  a  determination  to  the  contrary  would  result  to  his  incal- 
culable ])ecivnlary  advantage.  1  mention  this  fact  to  show  how 
thoroughly  disinterested  in  this  matter  is  ^Mr.  Munsell,  and  for 
that  reason  how  much  weight  should  be  given  to  his  testimony. 
He  coiifirms  entirely  what  I  have  already  said  regarding  the  his- 
tory of  the  times  and  the  object  of  passing  this  law.  He  tells 
us  that  the  Bill  was  drafted  by  him  and  introduced  in  the  Senate 
with  the  inte'ution  of  r«ei>ealinig  tihe  requirement  for  tiie  in<lis- 
pensable  stipulation  under  the  then  existing  law  and  to  allow 
the  companies  thenceforth  to  be  free  to  contract  in  their  own 


]82 

way  and  according  to  the  laws  of  their  own  States  foB  the  cal- 
culation and  distribution  of  the  reserve,  it  being  intended  only 
to  compel  them  in  all  cases  to  recognize  the  rights  of  the  in- 
sured to  the  reserve  and  to  stipulate  in  some  way  in  their  policies 
for  its  application,  after  a  laps^e,  to  term  or  paid-up  insurance. 
I'reedom  of  contract  was  expressly  recognized  and  permitted. 
Competition  and  business  rivalry  were  relied  upon  to  induce  the 
companies  tx)  make  the  form  of  the  contracts  satisfactory  to  the 
insured.  With  this  idea.  Senate  Bill  No.  378  was  introduced 
into  the  Legislature.  That  Bill  is  the  same  in  all  respects  as 
Section  450  of  the  Civil  Code,  with  the  exception  of  a  change 
in  the  wording  of  the  clause  which  we  now  have  under  consid- 
eration. As  first  introduced  the  Bill  provided  for  the  stipula- 
tion to  be  inserted  in  the  policies  for  the  application  of  the  re- 
serve to  term  or  paid-up  insurance,  "  unless  otherwise  speci- 
fically contracted  between  the  insurer  and  the  insured."  This 
clause  was  plainlly  open  to  the  very  proper  oibjection  which  it 
met,  that  it  did  not  state  the  subjects  about  which  the  insured 
and  the  insurer  might  "  otherwise  specifically  contract,"  and  Mr. 
"Munsell  informs  us  that  his  attention  was  called  to  this  fact  and 
also  that  a  remark  was  made  that  the  clause  as  it  stood  might 
conceal  a  ''  joker,"  whereupon,  of  his  own  volition,  he  changed 
the  wording  of  the  clause  by  inserting  therein  the  subjects  about 
which  it  was  intended  the  parties  might  otherwise  .specifically 
contract,  viz.:  for  other  term  or  paid-up  insurance,  and  made  the 
clause  read  "  unless  specifically  contracted  between  the  insurer 
and  the  insured  for  tontine  insurance  or  fox  other  term  or  paid- 
up  insurance.'"  (Tontine  insurance  being  always  excepted  by 
the  diil'erenc  States  from  the  requirements  of  such  acts,  because 
forfeituTe  of  the  reserve  or  profits  on  account  of  lapse,  is  its 
characteristic.)  And  so  amended  the  Bill  was  passed  and  became 
a  law. 

I  do  not  state  these  facts  as  a  conclusive  argument  in  favor  of 
our  construction  of  this  section.  It  is,  of  course,  quite  possible 
that  all  these  ciTcumstances  might  have  existed,  and  yet  the 
intention  of  the  Legislature,  as  expressed  in  the  language  of  the 
Act  might  require  a  difl'erent  and  contrary  cooastruction.  I 
mention  them  simply  as  tending  to  support  our  contention  and 
as  being  eminently  proper  to  be  considered  in  arriving  at  the 
true  intent  and  meaning  of  this  now  debatable  clause. 


183 

There  is,  however,  another  reason  why  the  history  of  the  times 
and  the  circii-nit^tances  s^urrounding  the  passage  of  this  Bill  merit 
the  fullest  and  most  serious  reflection  and  consideration.  They 
prove  beyond  all  doubt  that  the  Act  and  iU  proper  construction 
are  not  now  being  considered  for  the  first  time.  The  Bill  was 
not  a  child  of  the  night,  born  in  darkness,  its  advent  unheralded 
and  its  presence  unknown.  It  was  a  serious  Act,  passed  at  a 
serious  time,  to  meet  a  .serious  condition.  The  life  insurance 
business  in  California  at  the  time  of  its  passage  was  in  a  critical 
way,  and  the  proper  construction  of  this  Act  was  a  matter  of 
vital  importance,  calling  for  prompt  and  decisive  action  both  by 
the  companies  and  by  the  Insurance  Commissioner  of  this  State. 
Section  450  went  into  effect  June  26th,  1880,  and  the  Insur- 
ance Commissioner  was  directed  by  the  Act  itself  to  "imme- 
diately revoke  the  cerlificafe"  of  any  insurance  company  which 
should  issue  a  policy  "  not  in  conformity  with  the  provisions  of 
that  section."  It  thus  became  the  duty  of  the  Insurance  Com- 
missioner to  forthwith  interpret  and  enforce  the  provisions  of 
the  Act.  It  became  his  duty  to  examine  the  policies  issued  bv 
the  life  insurance  companies  and  determine  whether  or  not  thev 
conformed  to  the  requirements  of  the  new  law.  It  became  his 
duty  to  immediately  revoke  the  certificate  of  any  company  which 
should  issue  a  policy  not  in  conformity  with  its  requirements. 
It  must  be  presumed  "  that  official  duty  has  been  regularly  per- 
formed." (C.  C.  P.,  1963,  Sukl.  15.)  It  must  be  presumed, 
therefore,  that  the  Insurance  Coanmissioner  did  thoroughly 
weigh  and  consider  and  construe  all  of  the  provisions  of  Section 
450,  aided  by  his  knowledge  of  all  the  circumstances  and  con- 
ditions which  then  existed,  and  we  must  also  presume  that  he 
did  forthwith  examine  the  policies  of  all  the  insurance  com- 
panies, and  that  if  any  policy  bad  been  issued  by  any  company 
not  in  conformity  with  the  proper  construction  of  the  provisions 
of  that  section  its  certificate  would  have  been  immediately  re- 
voked. It  is  admitted  that  the  certificate  of  The  Equitable  Life 
Assurance  Society  has  never  been  revoked,  and  that  notwith- 
standing the  fact  that  its  policies  in  the  same  form  as  those  now 
being  issued  by  the  company  have  been  continuously  issued  in 
this  State  ever  since  the  time  when  Section  450  went  into  effect, 
there  was  never  any  criticism  by  Mr.  ]\[aynard,  who  was  at  that 
time  the  Insurance  Commissioner,  or  by  his  many  successors  in 


18i 

ofi&ce  up  to  the  present  time.  So  for  seventeen  years  the  con- 
structiion  put  upon  this  section  by  The  Equitable  Life  Assurance 
Society,  and  by  all  of  the  other  companies,  has  received,  if  not 
the  express  sanction,  that  which  from  length  of  time  has  become 
its  equivalent — the  long  and  uninterrupted  acquiescence  and 
tacit  approval  of  the  officers  of  the  State  whose  duty  it  was  to 
construe  and  execute  the  provisions  of  Section  450,  and  to  act 
upon  it. 

A  construction  supported  and  encouraged  by  such  action  or 
inaction  on  the  part  of  those  whose  duty  it  was  to  interpret  and 
enforce  the  laws,  should  not  now  l)e  changed.  This  is  especially 
true  when  the  effect  thereof  must  necessarily  he  to  declare  that 
the  insurance  company  forfeited  its  right  to  do  business  in  this 
State  when  it  issued  its  first  policy  after  the  26th  day  of  June, 
1880,  and  that  ever  since  that  time  it  has  done  business  without 
right.  And  this,  notwithstanding  the  fact  that  it  has  for  more 
than  seventeen  years  been  issuing  such  policies,  acting  in  good 
faith  under  the  construction  of  this  section  which  was  adopted 
by  all  the  insurance  companies,  and  impliedly  ratified  by  all  of 
the  Insurance  Commissioners  up  to  the  present  time.  The  dis- 
astrous consequences  which  such  a  radical  and  sweeping  change 
would  entail,  would  be  far  greater  than  can  be  imagined.  If 
the  company  has  done  business  without  right  since  1880,  then  of 
course  all  of  its  many  thousands  of  contracts  are  liable  to  attack 
on  that  account.  If  its  certificate  shall  be  revoked,  then  it  must 
be  driven  hence  because  a  new  certificate  can  only  be  issued  by 
the  Insurance  Commissioner  to  those  companies  which  "  have 
fully  complied  with  the  laws  of  thiB  State."  {Pol.  Code,  595.) 
Untold  loss  and  ruin  must  therefore  be  visited  upon  these  com- 
panies against  whicli  the  worst  that  can  be  claimed  is  that  they 
misinterpreted  the  meaning  of  the  statute,  under  the  supervision 
of  former  Insurance  Commissioners,  and  have  too  confidently 
relied  upon  the  presumption  that  those  Commissioners  were 
properly  performing  their  duties. 

These  are  the  reasons  why  the  State  of  California  should  now 
be  estopped  from  adopting  a  different  construction,  even  were  it 
clear  that  the  one  so  long  acquiesced  in  was  wrong.  But  aside 
from  the  question  of  estoppel,  it  is  well  settled  by  numerous 
decisions,  that  such  action  or  inaction  on  the  part  of  the  officers 
whose  duty  it  was  to  interpret  the  laws,  continued  for  a  long 


185 

time,  is  a  practical  construction  which  will  be  arlhered  to  even 
thou«j^h,  wei>e  the  question  a  new  one,  a  different  construction 
would  be  adopted. 

The  following  cases  declare  that  rule: — 

"Long  and  uninterrupted  practice  under  a  statute,  especially 
by  the  officen?  who&e  duty  it  was  to  execute  it,  is  good  evidence 
of  its  construction,  and  such  practical  construction  will  1m}  ad- 
hered to,  even  though,  were  it  res  integra,  it  might  be  difficult  to 
maintain  it." 

Harringion  v.  Smith,  28  Wis.  43,  68. 

"In  the  construction  of  a  doubtful  and  ambiguous  law,  the 
contemporaneous  construction  of  those  who  were  called  upon 
to  act  uiulcT  the  law,  and  were  appointed  to  carry  its  provisions 
into  effect,  is  entitled  to  very  great  respect." 

Edwards  v.  Darby,  12  ^Vheat.  210. 

"  The  construction  given  to  a  s-tatute  by  those  charged  \nth 
the  duty  of  executing  it,  is  always  entitled  to  the  most  respect- 
ful consideration,  and  ought  not  to  be  overruled  without  cogent 
reasons. 


7J 


United  States  v.  Moore,  95  U.  S.  760. 

Long  silence  on  the  part  of  the  officers  charged  with  the  duty 
of  executing  a  law,  and  the  fact  that  no  objection  has  even  l>een 
made  by  them  when  it  was  their  duty  to  speak,  is  equivalent  to 
an  express  declaration  on  the  subject. 

Wilson  V.  McNamee,  102  IT.  S.  572-575; 
Atkins  V.  Disintegrating  Co.,  18  Wall.  273,  504. 

And  see  also: — 

Stewart  v.  liaird,  1  Cranch.  299; 

j\lcl\een  v.  Delancy.  5  Cranch.  22; 

Union  Insurance  Co.  v.  Hoge,  21  How.  35; 

Hahn  v.  U.  S.,  107  U.  S.  406; 

Brown  v.  United  States,  113  U.  S.  568; 

United  States  v.  Philbrick.  120  U.  S.  52. 


186 

For  these  reasons,  Mr.  Coinmissio'ii'er,  I  believe  that  the  inter- 
pi"«tation  which  we  claim  for  Section  450  should  be  adopted  by 
you,  even  if  the  lan'guage  of  the  Act  might  now  warrant  a  differ- 
ent constructi'on,  were  the  law  a  late  enactment  and  the  question 
of  its  construction  a  new  one.  But  it  seems  to  me  that  the  lan- 
guage of  the  Act  taken  by  itself,  stripped  of  all  surrounding  cir- 
cumstances, compels  the  interpretation  we  give  it,  and  negatives 
any  other  construction.  Let  me  read  those  portions  of  Section 
450,  which  I  believe  to  be  material  to  the  present  inquiry: — 

"  Every  *  policy  of  iutsurance  *  shall  contain,  unless 
specifically  contracted  between  the  insurer  and  the  insured  for 
tontine  insurance,  or  for  other  term  or  ] 'aid-up  insurance,  a  sHpu- 
lation  that  after  three  full  annual  premiums  shall  have  been  paid 
on  such  policy  *  *  its  entire  net  reseiwe  *  *  shall  be 
applied  *  either  to  the  purchase  of  *  term  insurance  * 
or  upon  the  written  application  by  the  owner  *  to  the  pur- 
chase of  a     *     paid-up  policy." 

Inasmuch  as  the  clause  heginning  with  the  words  "  unless 
specifically  contracted  "  is  in  the  nature  of  a  proviso  or  excep- 
tion to  the  rest  of  the  section,  it  will  perhaps  aid  us  in  arriving 
at  the  true  construction  of  the  Act  to  place  this  claiwe  at  the 
end.    With  this  modification,  the  section  reads: — 

"  Every  *  policy  of  insuraTice  *  shall  contaiTi  *  a 
stipulation  that  after  three  full  annual  premiums  shall  have  been 
paid  on  such  policy  *  *  its  entire  net  reserve  *  *  shall 
be  applied     *     either  to  the  purchase  of     *     term  insurance, 

*  OT  upon  the  written  application  by  the  owner  *  to  the 
purchase  of  a  *  paid-up  policy  *  unless  specifically  con- 
tracted between  the  insurer  and  the  insured  for  tontitne  insur- 
ance, or  for  other  term  or  paid-up  insurance." 

The  difference  of  opinion  occurs  in  determining,  first,  the  form 
of  stipulation  required  by  the  Act,  and  second,  the  extent  and 
meaning  of  the  exception. 

I  believe,  Mr.  Commissioner,  that  you  are  inclined  to  the  opin- 
ion that  the  stipulation  must  provide  that  the  Company  will 
first  apply  the  net  reserve  to  the  purchase  of  term  insurance, 
and  also  give  to  the  insured  the  additional  right  to  come  for- 
ward within  three  months  after  the  non-payment  of  premiums 
and  after  the  net  reserve  has  been  applied  to^  the  purchase  of 
term  insurance,  and  after  that  insurance  has  been  in  force,  and 


187 

have  the  net  reserve  re-applierl  to  the  purchase  of  paid-np  in- 
surance. The  insurance  com|>aniefi  l)eliove  that  the  law  only  re- 
rjnires  the  companies  to  make  one  stipulation,  which  shall  either 
proviflo  that  th^  net  reserve  shall  he  npplied  to  the  purchase  of 
oxlenflofl  term  insurance,  a.s  require<l  hy  the  statute,  or  that  the 
i'n^urecl  shall  have  the  right  within  three  months  to  coroe  for- 
ward and  have  his  net  reserve  applied  to  the  purchase  of  a  paid- 
up  policy,  as  required  hy  the  statute. 

Tt  canunt  ])e  disputed  that  the  construction  adopted  hy  you 
finds  some  support  in  the  words  of  the  statute.  Neither  can  it  he 
douhted  that  the  language  will  also  uphold  the  interpretation 
contended  for  by  the  insurance  companies.  To  say  the  least,  the 
section  is  in  this  respect  ambiguous  and  open  to  both  cons^ruc- 
tions.  I  respectfully  submit,  boweyer.  that  the  view  of  the  in- 
surance eomp«nies  is  more  in  accordance  with  business  principles 
and  with  justice. 

I  insist  that  a  constructiou  of  this  Act  by  which  the  com- 
panies, after  they  have  once  applied  the  net  reserve  to  the  pur- 
chase of  term  insurance  for  the  full  amount  of  the  face  of  the 
policy  and  have  assumed  the  risk  of  paying  the  full  amount  in 
the  event  of  death,  may  at  any  time  short  of  three  months  be 
compelled  by  the  insured  to  cancel  this  term  insurance  policy 
and  re-apply  the  net  reserve  to  the  purchase  of  the  same  amount 
of  paid-up  insurance  as  the  insured  would  have  been  entitled  to 
in  the  first  instance,  is  contraTy  to  all  principles  of  fairness  and 
justice,  and  in  conflict  with  all  sound  rules  heretofore  ohtaining 
in  the  Inisiness  of  life  insurance.  It  compels  the  insurance  com- 
panies to  give  something  for  nothing.  Tt  offers  a  premium  on 
dishonesty,  for  it  permits  the  insured  to  wait  and  speculate  on  his 
h'fe;  if  he  dies  his  heirs  receive  the  full  amount  of  his  term  in- 
surance; if  he  lives,  this  insurance  has  cost  him  no-thing,  and  he 
then  receives  the  same  paid-up  insurance  he  would  have  obtained 
had  he  applied  three  months  earlier.  This  works  a  rank  injustice 
to  policy-holders  who  faithfully  meet  their  obligations  to  the  in- 
.<iurers.  While  the  languag-e  of  the  Act  is  ambiguous  and  may 
give  some  color  of  wni-iant  to  both  constructions  which  have 
])cvn  put  upon  it,  yet  for  the  reason  just  given,  I  contend  that 
the  interpretation  contended  for  by  the  insurance  companies 
must  prevail.  This  subject  has  been  so  thoroughly  exhausted  Hy 
the  attorneys  who  have  preceded  me  that  I  will  pass  on  to  the 


188 

last  question:  that  is,  the  interpretation  to  be  given  to  the  words 
"unless  specifically  contracted  between  the  insurer  and  tbe  in- 
sured for  tontine  insurance,  or  for  other  term  or  paid-up  in- 
surance." 

It  is  your  belief,  I  understand,  Mr.  Commissioner,  that  this 
excepts  only  original  contracts  for  tontine,  term  or  paid-up  in- 
surance; in  other  words,  only  tontine,  term  or  paid-up  policies; 
on  the  other  hand,  we  all  contend  that  the  exception  applies  to 
policies  containing  contracts  for  tontine  insurance,  and  those 
wherein  the  insurer  and  insured  have  contracted  for  the  applica- 
tion of  tbe  reserve  to  term  or  paid-up  insurance  diffexent  from 
that  specified  in  the  statute.  I  Iwlieve  that  your  interpretation 
is  incorrect  for  these  reasons: — • 

In  the  first  place,  let  us  coaisider  paid-up  insurance.  The 
words  "  unless  sprcifically  contracted  between  the  insurer  and  the 
insured  for  *  *  paid-up  insurance  "  cannot  apply  to  policies 
upon  which  the  premiums  have  been  fully  ascertained  and  paid 
at  the  outset — that  is,  sdngle  premium  policies.  Such  policies 
are  paid-up  insurance  and  cannot  in  their  nature  be  specific  con- 
tracts for  paid-up  insurance.  A  policy  wherein  the  insurer  and 
the  insured  have  "  specifically  contracted  for  paid-up  insurance  " 
must  be  a  policy  which  entitles  the  insured  to  paid-up  insurance 
upon  his  compliance  with  the  terms  of  tbe  contract  on  his  part 
to  he  performed,  and  it  follows  that  under  such  a  policy  tbe  in- 
sured will  not  obtain  the  paid-up  insurance  if  he  fails  to  comply 
^^^th  its  terms.  A  single  premium  policy  containing  such  an 
agreement  or  contract  would  be  an  absurdity.  It  would  be  a 
contract  wherein  the  insured  having  fully  paid  for  and  secured 
all  that  he  desired  would  thereupon  agree  to  do  certain  other 
acts  in  order  to  obtain  that  which  he  already  bad. 

Again,  if  the  I^egislature  had  intended  by  this  clause  to  ex- 
cept only  tontine,  term  and  paid-up  insurance  policies,  tbe  law 
would  have  read  "  unless  specifically  contracted  for  tontine,  term 
or  paid-up  insurance."  Such  a  clause  would  have  expressed  that 
intention  simply,  effectively,  and  without  any  ambiguity.  It  is  a 
familiar  rnle  of  statutory  construction  that  the  Legislature  must 
be  presumed  to  have  used  no  more  words  than  were  necessary  to 
express  its  meaning,  or,  as  the  rule  is  sometimes  expressed: 
"Every  clause  and  word  in  a  statute  shall  be  presumed  to  have 
been  intended  to  have  some  force  and  effect."    (Opinion  of  Ju^s- 


189 

ticcs,  22  Pick.  .",71;  TTarringtcn  v.  Smith,  28  Wis.  43,  67.)  In 
tliL'  place  of  tlie  simj)le  clause  aiboye  .set  out,  however,  we  fin<l 
that  it  reads  "  u^nless  specifically  cO'Titracted  for  to-ntine  insur- 
ance, or  for  oilier  term  or  paid-up  insurance."  The  words  "in- 
surance, or  for  other  "  have  thus  been  inserted,  ex  industria,  and, 
prcsuin])tivelY,  for  "some  force  and  effect."  Inasmuch  as  the 
clause  would  have  had  a  clear  iiieaninf^  had  these  words  been 
omitted,  it  is  natural  to  presuuie  that  they  were  inserted  for  the 
very  purpose  of  changing  the  meaning  which  the  clause  would 
otherwise  express.  In  construing  this  section,  these  words  must 
be  given  some  force  and  effect.  They  cannot  be  omitted  or  dis- 
regarded. 

"In  construing  a  statute  the  duty  of  the  Court  is  simply  to 
a,scertain  and  declare  what  is  in  terms  or  in  substance  declared 
therein,  not  to  insert  what  has  been  omitted,  or  to  omit  what  has 
leen  inserted." 

In  re  Walker,  110  Cal.  306; 
C.  C.  P..  Sec.  1858. 

"  It  is  a  well  settled  rule  of  interpretation,  that  a  statute  must 
be  co-nstrued  so  as  to  give  effect  and  meaning,  if  possible,  to 
every  clause  and  word." 

Souter  V.  Sea  Witch,  1  Cal.  162. 

"  It  is  our  duty  to  so  construe  every  provision  of  a  \\Titten 
instrument  as  to  give  force  and  effect,  not  only  to  every  clause, 
bvt  to  every  word  in  if,  so  that  no  clause  or  trord  may  become 
redundant." 

Hyatt  V.  Allen,  54  Cal.  353,  359. 
And  see  also, 

Langenour  v.  French,  34  Cal.  92; 
Ex  parte  Reis,  64  Cal.  240. 

"A  statute  ought,  upon  the  whole,  to  be  so  construed  that  if 
it  can  be  prevented,  no  clause,  sentence  or  word  shall  be  super- 
fluous, void  or  insignificant." 

James  v.  Du  Rois,  1  TTarrison  (N".J.)  285,  293; 
Harrington  v.  Smitb.  28  Wis.  43,  67. 


100 

Applying  this  well  settled  rnlo  to  the  present  case,  if  we  take 
this  clause  to  mean  simply  that  original  oontraets  for  tontine, 
term  or  paid-np  insurance  shall  he  excepted,  the  word  "other" 
can  he  given  no  meaning,  and  must  be  omitted  in  order  to  make 
sense.  "  Tontine  "  insurance.  a«  is  well  known,  is  not  a  kind 
of  "  term  "  insurance,  neither  is  it  a  Idnd  of  "  paid-up  "  insur- 
ance. Tf  "  tontine  insurance  "  were  a  form  of  "  term  or  paid-up 
insurance,"  then  there  was  no  necessity  or  propriety  for  specifi- 
cally mentioning  it,  because  the  words  "  term  or  paid-up  insur- 
anee  "  would  include  it.  It  would  be  like  a  statute  specifying 
boys  with  blue  eyes,  and  other  boys.  Tlie  word  "other"  does 
not  then  refer  to  "  tontine  insurance."  I  need  not  pursue  this 
point  further  because  I  understand  you  to  admit  that  in  your 
opinion  the  word  "  other  "  has  no  meaning  or  effect,  and  should 
be  disregarded.  As  we  have  already  seen,  however,  the  word 
should  not  be  disregarded  if  force  and  effect  can  be  given  to  it  by 
some  other  construction. 

What  is  the  meaning  of  the  word  "other?"  Webster  defines  it 
as  ''  different  from  that  ivliirli  has  teen  specified"  and  our  Su- 
l)reme  Court,  in  Hyatt  v.  Allen,  54  Cal.  353,  357,  in  construing 
'd  statute  containing  this  word,  has  adopted  Mr.  Webster's  defin- 
ition. It  may  therefore  be  said  to  have  had  a  settled  and  defined 
meaning  in  this  State  when  this  law  was  adopted,  to  wit: 
Different  from  that  which  has  been  specified. 

If,  then,  we  strike  out  of  Section  450  the 'word  "  other"  and 
insert  in  its  place  "  different  from  that  which  has  been  specified," 
the  section  will  read: 

"  Every  *  policy  of  insurance  *  shall  contain  *  a 
stipulation  that  after  three  full  annual  premiums  shall  have  been 
paid  on  such  policy  *  *  its  entire  net  reserve  *  *  shall 
be  applied  *  *  either  to  the  purchase  of  *  term  insur- 
ance, *  or  upon  the  written  application  by  the  owner  *  to 
the  purchase  of  a  *  paid-up  policy,  unless  specifically  con- 
tracted between  the  insurer  and  the  insured  for  tontine  insur- 
ance, or  for  term  or  paid-up  insurance  different  from  that  which 
has  been  specified." 

By  this  change  every  word  is  given  its  appropriate  meaning 
and  no  rule  of  statutory  construction  is  violated.  The  intention 
and  requirement  of  the  statute  become  perfectly  clear.  Its  mean- 
ing conforms  to  the  construction  which  all  of  the  former  Insur- 


191 

jincc  Coiiiinissionpi-s  irnj)lierlly  havo  <rivon  to  it  It  tallies  with 
hiisimss  princiiik's  always  recoirnized  as  sound  in  the  conduct  of 
life  insurance,  and  which  f^hnuhl  also  weifjfh  in  arrivinfr  at  the 
true  ineaniii<i'  of  a  statute.  It  is  what  we  contend  the  statute 
has  ever  meant  and  shows  that  the  policies  of  The  Equitable 
have  been  issued  throiiirhout  i-n  strict  conformity  with  its  re- 
quirements. ^ 

1  therefore  resptctfully  submit  and  insist  that  the  interpre- 
tation heretofore  o^ven  to  this  section  by  the  insurance  com- 
panies is  the  only  correct  one. 

It  is,  perlmps,  unnecessary.  Mr.  Commissioner,  to  touch  upon 
the  crrave  consequences  which  must  inevitably  follow  iipon  a  de- 
cision on  your  part  adverse  to  the  contentions  which  I  have  here 
preee-nted.  There  is  scarcely  a  family  in  this  State  which  is  not 
interested  in  the  results  of  your  delibprations  and  action.  I  will 
state,  by  w;iy  of  illustration,  T  am  c^e^libly  informed  that  four 
of  the  comjranies  which  have  appeared  before  you  in  this  pro- 
ceeding are  now  carryins:  about  45.000  poL'cies  which  are  in  force 
in  this  State,  and  cover  more  than  120  millions  of  life  insurance. 
You  will  not  fail  to  appreciate  that  any  radical  change  in  the 
manner  of  conducting  such  large  interests  must  be  attended  by 
very  serious  results.  These  companies  are  doing  business  upon 
the  mutual  plan,  and  their  present  poh'cy  holders  must  bear  the 
burden  of  rectifying  any  errors  which  may  have  been  committed 
in  the  past.  These  holders  have  complied  fully  with  all  their 
obligations,  and  it  would  be  a  monstrous  proposition  to  ask  them 
to  contribute  the  necessary  means  to  meet  claims  to  be  here- 
after presented,  under  a  hostile  ruling  on  your  part,  by  those 
who  have  been  derelict  in  performing  obligations  which  were 
assumed  voluntarily  and  advisedly.  Such  a  course  would  l>e  a 
rebuke  to  the  vigilant  and  deserving,  and  a  premium  to  the  care- 
less and  profligate.  There  can  be  no  suspicion  about  the  good 
faith  of  the  companies  here  represented,  in  the  transaction  of 
(heir  business.  There  is  no  taint  attending  their  methods:  they 
have  been  open  and  straightforward.  There  is  no  suggestion  of 
any  unlawful  trust  or  combination  on  their  part;  they  have  pro- 
ceeded in  reliance  upon  the  protection  of  the  State  in  the  pur- 
suit of  a  legitimate  business  honestly  conducted.  Wliile  T  cheer- 
fully and  fully  recognize  that  in  the  discharge  of  your  duties  as 
Insurance  Commissioner,  vou  are  only  seeking  to  keep  the  obli- 


192 

gatioois  imposed  by  your  oath  of  ollice,  and  are  guided  solely  by  a 
sincere  desire  to  rightly  eiiforce  the  laAvs  as  they  are  written 
upon  the  statute  books,  I  confidently  believe  that  you  will  dis- 
cover no  exigency  in  this  situation  which  demands  any  such 
radical  change  in  the  interpretation  of  those  laws  as  has  been 
suggested;  that  you  will  at  least  conclude  that  such  grave  doubts 
beset  the  questions  M'hich  have  here  arisen  as  to  preclude  any 
affirmative  action  on  your  part  until  the  Legislature  has  had  an 
opportunity  to  indicate  wherein  lies  the  true  solution  of  the  diffi- 
culty. And  with  entire  confidence  in  the  correctness  of  the 
views  which  I  have  had  the  honor  lo  here  present,  and  in  the 
utmost  faith  that  you,  as  an  officer  of  the  State,  will  bring  to 
the  consideration  of  these  grave  and  momentous  questions,  judi- 
cial impartiality  and  a  conservative  disposition,  I  submit  the 
matter  into  your  hands. 


ME.  THOMAS.  May  I  suggest  one  more  rule  of  construction 
that  was  suggested  by  Mr.  Rhodes'  argument?  He  very  forcibly 
put  to  you  the  proposition  as  to  what  the  rule  of  construction  is 
on  a  penal  statute;  that  a  construction  must  be  given  which  pre- 
vents the  forfeiture.  There  is  another  rule  which  can  also  be  ap- 
plied in  the  same  line:  \Vhere  a  statute  infringes  upon,  or  is  re- 
strictive on  that  common  right  than  the  other,  it  is  the  duty  of 
common  right),  the  same  rule  of  construction  applies.  If  there  be 
a  possibility  to  give  two  constructions,  one  of  which  is  less  re- 
strictive on  that  comon  right  than  the  other,  it  is  the  duty  of 
the  court  to  adopt  that  constraction  which  is  the  least  restrictive. 
Take  the  case  which  provides  for  contracts  in  restraint  of  trade, 
and  your  Honor  will  find  that  rule  applies  to  all. 

THE  COMMISSIONEE.  I  do  not  understand  that  that  rule 
applies  in  the  case  of  a  foreign  corporation  coming  into  the  State 
to  do  business.  I  do  not  understand  there  is  any  common  right 
of  corporations  to  do  busimess  in  the  State.  The  right  to  do 
business  is  simply  a  matter  of  grace  from  the  State.  When  a 
corporation  seeks  to  do  business  it  must  comply  with  the  law  of 
the  State,  particuilarly  if  it  is  a  foreign  corporation.  That  is  my 
understanding  of  the  law.  I  want  to  say  that  I  realize  the  diffi- 
culty of  decidimg  this  matter  as  well  as  any  of  the  gentlemen 
here.     I  do  not  think  it  is  a  clear  question  either  way.     I  think 


193 

it  is  a  question  of  doubtful  const ruotion,  and  the  criticisms  pro- 
nounced on  the  Act  are  well  founded.  1  do  not  believe  that 
any  one  here  claims  that  it  is  susceptible  of  any  clear  reasoaiing. 
Some  time  ago,  when  this  matter  first  arose,  several  of  the  gentle- 
men here  presented  it  to  me.  They  came  without  a  formal  hear- 
ing and  I  discussed  it  with  them.  I  told  them  what  my  views 
were.  I  told  them  at  the  same  time  I  realized  it  was  too  serious 
a  question  for  me  to  decide  hastily.  That  is  all  the  more  firmly 
fixed  in  my  mind  when  I  have  the  opinions  of  Judge  Rhodes, 
Mr.  Hankin,  and  Mr.  Thomas,  and  other  lawyers,  in  which  they 
disagree  with  me.  I  give  them  credit  for  good  faith  in  what 
they  say,  although  I  realize  they  are  here  as  advocates  and  attor- 
neys for  certain  Companies.  The  unfortunate  part  of  it  is,  I  am 
the  Commissioner,  and  I  have  to  render  a  decision  of  some  kind. 
I  must  say  that  some  of  my  former  opinions  have  been  shaken 
by  the  hearing  I  have  had  in  the  past  tw^o  days.  But  there  is 
one  thing  I  never  will  consent  to — I  want  to  say  it  frankly,  and 
I  am  as  prepared  to  say  it  now  as  I  will  be  in  a  month  or  two — 
and  that  is,  that  I  will  never  decide  that  at  the  end  of  three 
months,  under  this  law,  a  policy-holder  loses  his  rights  if  he  does 
not  surrender  his  policy  and  apply  for  paid-up  insurance.  My 
idea  is,  the  Legislature  intended  that  after  a  man  had  made  three 
annual  payments  of  premiums,  the  reserve  should  be  given  to 
him  by  way  of  extended  or  paid-up  insurance,  and  not  to  the  Com- 
pany, and  that  every  policy  issued  must  contain  the  stipulation 
provided  by  Section  450  of  the  Code,  unless  it  was  a  tontime, 
term  or  paid-up  policy.  My  idea  is  that  it  is  one  stipulation. 
They  are  both  to  be  in  the  policy  as  a  right  to  be  given  to  the 
policy-holder  The  only  trouble  about  that,  that  I  have  in  mind, 
is  the  fact  of  the  three  months  of  interim  between  the  time  of 
the  forfeiture  of  the  original  policy  and  the  application  for  paid- 
up  insurance.  Mr.  Rankin  and  Mr.  Thomas  have  pointed  out  to 
me  that  the  policy-holder  seems  to  have  something  here  for 
nothing,  and  to  get  the  benefit  of  both  conditions  whore  the  law 
intended  to  give  but  one.  In  other  words,  he  gets  his  insurance 
extended  and  also  gets  the  right  to  this  paid-up  {X)licy  at  the  end 
of  three  months.  As  far  as  most  of  the  New  York  Compajiies 
are  concerned,  they  do  not  give  him  anything.  They  take  away 
everything  unless  he  exercises  an  option  within  three  months. 
Mr.  Smith's  Company  does  give  to  the  policy-holder  a  paid-up 


194 

policy.  While  I  have  not  the  right  to  declare  the  policy  of  the 
State,  it  seems  to  me  that  in  view  of  the  condition  that  this 
statute  is  in,  if  all  the  Oom])anies  were  in  a  position  where  they 
gave  to  the  policy-holder  the  paid-np  policy,  where  he  did  not 
apply  for  anything,  I  shonld  hesitate  to  take  any  license  away. 
The  only  Company  that  really  does  that  is  Mr.  Smith's  Company, 
and  the  New  York  Life,  nnder  the  recent  policy  they  have  issued. 

MR.  THOMAS.     And  the  Connecticut  Mutual. 

MR.  ^lUNSELL.  You  do  not  understand  the  Mutual  Benefit 
does  not  do  it? 

THE  COMMISSIONEE.  I  understand  that  Company  very 
nearly  complies  with  the  law  as  I  construe  it. 

ME.  MUNSELL.     Absolutely. 

THE  COMMISSIONEE.  Another  matter  that  would  in- 
fluence me  very  much,  aud  which  I  have  been  considering  during 
the  time  this  discussion  lias  been  going  on,  is,  to  get  at  what  the 
experience  of  the  Companies  has  been.  We  have  had  this  in 
operation  since  1880.  I  should  like  to  know  whether  the  failure 
to  comply  with  this  section  has  worked  any  injury  to  policy- 
holders. It  was  the  idea  I  had  in  my  mind  some  time  ago,  when 
I  sent  out  for  the  list  of  policies  of  the  Companies,  as  to  just 
what  the  effect  has  been.  Have  the  policy-holders  of  the  State 
lost  any  rights  by  reason  of  the  fact  that  these  Companies  have 
not  complied  with  the  law?  Taking  the  history  of  the  policies 
as  shown  by  the  Companies'  books,  have  there  been  any  cases  in 
which  forfeitures  have  accrned  after  payment  for  three  years,  in 
which  paid-up  insurance  has  not  been  given?  I  say  to  you 
gentlemen  frankly  now,  so  that  you  can  understand  and  protect 
yourselves,  I  should  be  very  loth  to  give  any  decision  that  would 
take  away  from  the  policy-holders  of  the  State  the  right  that  I 
think  the  Legislature  intended  to  give  them.  There  is  such  a 
wide  diiference  between  us  ujion  the  constniction  of  this  law, 
that  I  suggst  to  Mr.  Thomas  that  if  the  courts  have  revisory 
power,  as  he  seems  to  think  they  have  and  it  may  be  they  have, 
that  he  take  the  question  into  court  with  his  Companies.  Per- 
haps by  the  time  that  the  next  Legislature  assembles  some  law 
could  be  framed  that  would  satisfy  every  one.  If  all  the  policies 
of  these  Companies  were  in  the  same  condition  as  Mr.  Smith's 
Company,  and  every  policy-holder  in  the  State  had  been  getting 


195 


some  equivalent  for  the  money  he  paid  in,  1  should  heaibate  a 
long  time  before  revoking  any  license,  and  even  now  I  should 
hesitate  about  it.  That  is  the  position  1  am  in.  My  views  have 
been  shaken  a  great  deal  by  the  arguments  that  you  gentlemen 
have  presented  to  me.  The  inatt-er  has  been  very  thoroughly 
pretsented,  and  1  feel  under  a  great  many  obligations  to  you 
gentlemen  for  doing  it.  I  only  want  to  do  what  is  right.  I  am 
not  here  to  haxass  or  annoy  any  of  the  Companies.  lam  here  to 
see  that  tlie  policy-holders  are  treated  fairly  by  the  Company. 

MR.  liUODKS.  I  do  not  believe  there  is  any  complaint  that 
any  policy-holder  has  suffered  in  consequence  of  there  not  being 
this  second  clause  in  the  stipulation.  I  have  heard  of  none,  and 
1  have  talked  with  a  great  many  Insurance  men.  I  do  not  be- 
lieve your  Honor  will  be  of  opinion  that  the  Ijegislatiu'e  irn- 
tended  to  cut  off  all  right  on  the  i>art  of  the  coqwration  to  make 
such  i-easonable  rules  and  regulations  and  contracts  in  the  dis- 
position of  the  reserve  as  they  may  agree  to.  If  that  be  the 
case,  I  do  not  see  why  there  should  be  any  objection  to  allowing 
the  matter  to  stand  until  the  next  Legislature  should  do  that 
which  it  seems  to  me  is  apparent  ought  to  have  been  done,  to 
provide  that  every  policy  of  insurance  issued  to  a  resident  of  this 
State  and  delivered  to  him,  should  be  deemed  and  construed  to 
have  this  provision,  in  addition  to  any  others  like  the  Mutual. 

THE  COMMISSIONER.  You  certainly  do  not  believe. 
Judge  Rhodes,  that  the  Legislature  intended  that  after  the  in- 
sured had  paid  his  premiums  for  ten  or  twenty  years,  or  even 
seven  years,  and  met  his  renewals,  that  his  failure  to  apply  in 
three  months  should  drop  him  out? 

MR.  RHODES.  No.  But  he  did  have  the  benefit  of  that 
other  clause,  which  would  be,  possibly,  better. 

THE  COMMISSIONER.  Extended  insurance  is  not  given 
at  all  by  the  Companies. 

MR.  THOMAS.  He  could  have  got  a  contract  for  such  in- 
surance. 

THE    COMMISSIONER.     At  the  start? 

MR.  THOj\rAS.     Yes. 

THE  COMMISSIONER.  I  do  not  attribute  much  import- 
ance to  that.  When  you  come  to  make  a  contract  for  insurance, 
we  all  know  the  assured  has  not  had  anything  much  to  do  with  it. 
The  stipulations  and  terms  of  a  contract,  as  1  say,  are  never 


ij)6 

known  to  the  policy-holder.  He  does  not  get  his  policy  until 
after  the  contract  is  absolutely  closed. 

ME.  ERODES.  But  this  automatic  provision  operates  at 
once. 

THE  COMMISSIONEE.  I  understand  not.  If  the  auto- 
matic insurance  was  in,  I  would  have  to  say  that  the  Companies 
were  fully  complying  with  the  law.  Take  Mr.  Thomas'  New 
York  Companies.  They  nowhere  provide  for  automatic  insur- 
ance at  all. 

ME.  THOMAS     We  provide  for  something  better. 

THE  COMMISSIONEE.  I  am  answering  Judge  Ehodes' 
position.  If  they  provided  in  their  policies  that  a  man  should 
have  paid-up  insurance  provided  he  applied  for  it  in  three 
months,  and  in  the  event  of  his  not  applying  for  it  that  they 
would  carry  the  reserve  along  and  pay  the  premiums  on  the 
original  policy,  your  position  is  correct.  I  would,  consent  to  that. 
But  they  do  not  do  that. 

ME.  EHODES.  On  our  part,  and  on  the  part  of  some  others 
who  are  in  the  same  condition,  we  say  that  that  reserve  shall  be 
applied.  It  takes  effect  so  that  it  produces  an  insurance  which 
according  to  their  tables,  is  all  he  could  buy  if  he  went  in  there 
with  money. 

THE  COMMISSIONEE.  As  I  understand,  the  Company 
that  you  represent,  the  New  England  Mutual  Life  Insurance 
Company,  gives  the  assured  a  paid-up  policy  if  he  applies  for  it 
in  three  months. 

ME.  EHODES.     He  does  not  have  to  apply  at  all. 

THE  COMMISSIONEE.  You  carry  it  automatically,  the 
same  as  Mr.  Smith's  Company? 

ME.  EHODES.     Yes. 

THE  COMMISSIONEE.  In  a  large  number  of  Compa,nies 
particularly  those  that  come  from  New  York  (and  Mr.  Thomas 
represents  one  of  the  principal  Companies),  I  understand  unless 
a  man  applies  in  three  months — 

ME.  THOMAS.     (Interrupting.)     Six  months. 

THE  COMMISSIONEE  (Continuing.)— he  absolutely  forfeits 
the  entire  reserve.  I  cannot  get  my  mind  in  a  condition  where 
I  ca.n  say,  and  say  co-nscientiously,  that  the  Legislature  ever  in- 
tended any  such  thing  as  that.  I  think  if  Mr.  Thomas'  Company 
provided  that  in  the  event  of  the  assured  not  taking  the  paid-up 


10' 


policy  at  the  end  of  three  or  six  months,  that  they  then  would 
take  the  reserve  and  carry  it  on,  the  position  of  Mr.  Rliodes 
would  be  correct.  I  understand  that  is  what  some  of  the  Com- 
panies do.  T  should  hesitate  to  revoke  the  license  of  a  Company 
doing  that,  inasmuch  as  this  section  is  susceptible  of  several  con- 
structions. I  am  going  through  every  policy  before  I  act  upon 
this  matter  definitely.  Before  I  decide  upon  the  revocation  of 
the  license  of  any  Company.  T  shall  examine  all  the  policies. 
But  I  will  say  to  you,  gentlemen.  T  feel  I  am  just  as  able  to  pass 
upon  this  matter  now  as  at  any  time. 

MR.  LANDERS.  All  policies  issued  after  the  enactment  of 
this  law  by  the  Manhattan  Life  Insurance  Company  provided  for 
paid-up  insurance  by  the  surrender  of  it  within  six  months  after 
the  date  of  the  renewal  anniversary.  There  are  other  policies 
issued  on  the  term  plan,  that  is,  the  limited  payment  plan,  that 
give  the  paid-up  insurance  without  notice  to  the  insured  and 
without  the  surrender  of  the  original  policy. 

THE   COMI\riSSIONER.     I  have  them  all  here. 

MR.  LANDERS.  Since  the  15th  of  August.  1897,  all  our 
policies  are  automatic;  that  is,  they  give  practically  the  same 
benefits  to  the  policy-holder.  They  give  him  the  privilege  of 
paid-up  insurance  or  extended  insurance. 

THE  COMMISSIONER.  I  have  all  those  policies  and  I  will 
examine  them  before  I  pass  upon  the  matter. 

^fR.  LANDERS.  So  that  if  we  were  not  in  full  accord  ^nth 
the  law  then,  we  are  now. 

MR.  RHODES.  When  you  examine  those  provisions  further 
and  look  into  these  policies  and  the  law,  your  Honor  will  an- 
nounee  whether  these  Companies  are  acting  in  violation  of  the 
law.  Yonr  Honor  will  not  take  it  upon  yourself  at  once  to  re- 
voke their  license? 

THE  CO^nnSSIONER.  I  am  not  prepared  to  say.  I  have 
tried  to  make  my  position  fairly  unders.tood,  so  you  genflemen 
might  understand  how  I  feel.  T  have  refrained  from  giving  any 
formal  decision  on  this  matter  up  to  now.  I  think  T  am  sitting 
in  the  position  of  a  court.  I  do  not  understand  that  when  a 
court  is  about  to  give  a  decision,  it  sends  for  the  litigants  and 
tells  them  how  it  is  going  to  decide.  T  have  tried  to  give  you  an 
intimation  of  how  I  stand. 


11)8 

MR.  RHODES.     If  you  revoke  their  license,  it  would  be  in 
the  nature  of  an  execution. 

THE   COMMISSIONER.     T  have  tried  to  give  yon  warnirng 
by  wliich  yon  may  be  gnided. 

MR.  THOMAS.     I  undei-stand  my  warning  very  well,  and 
I  want  to  say  two  or  three  words  when  everybody  is  all  through. 

THE    CO.AIMJSSIONER.     I  understand  that  Mr.  Munsell's 
Company  claims  it  complies  with  the  law. 

MR.  THOMAS.  It  seems  to  me  I  am  suffering  under  the  dis- 
advantage of  having  been  most  active  in  trying  to  find  out  exactly 
what  your  wishes  are,  and  making  every  kind  of  an  argument 
that  1  could  to  satisfy  you  that  we  are  right.  Why  the  Mutual 
Life  should  suffer  because  it  happens  to  have  a  policy  which  does 
not  comply  with  the  statute,  any  more  than  any  other  Company, 
1  eanuDt  s^ee.  We  carry  $27,000,000  insurance  in  this  State. 
So  far  our  policy-holders  have  been  satisfied  We  are  the  only 
Company  that  has  had  the  pluck  to  come  into  the  State  of  Cali- 
fornia and  invest  a  large  sum  of  money  in  a  building.  We  have 
$400,000  invested  in  that  building.  That  shows  we  had  faith 
that  the  State  would  treat  us  right.  The  effect  of  a  forfeiture 
of  our  license  would  be,  on  account  of  the  size  of  our  business, 
more  disastrous  than  to  any  other  Company.  We  have  a  policy 
in  which  it  is  provided  absolutely  that  unless  a  demand  is  made 
in  six  mcnths,  the  assured  forfeits  everything.  That  is  true. 
That  is  a  great  deal  better  for  the  assured  than  a  policy  that  pro- 
vides for  automatic  term  insurance.  If  the  law  should  be 
changed  to  compel  all  Companies  to  give  an  automatic  term  and 
not  paid-up  insurance,  we  would  all  be  very  glad,  but  that  is  not 
half  as  valuable  to  the  assured  as  the  class  of  policies  we  carry. 
It  is  true,  under  our  policy,  unless  the  demand  is  made  in  less 
tbam  six  months,  the  assured  does  not  get  anything.  If  the  as- 
sured forfeits  his  reserve,  the  Company  does  not  get  it,  because 
we  are  a  mutual  company,  hence  the  other  policy-holders  gelt  the 
benefit  of  that  forfeituTe.  It  adds  to  the  solvency  of  the  con- 
cern, to  which  all  policy-holders  look  when  they  come  to  realize 
on  their  policies.  I  do  not  think  the  law  intended  that  a  Com- 
pany that  is  carrying  $27,000,000  of  insurance  in  the  State 
should  have  its  certificate  revoked  simply  because  the  only  thing 
it  asks  of  the  assured  is  to  say  whether  or  not  he  wants  to  go  on. 
I  think  that  is  a  pretty  severe  forfeiture. 


199 

THI<:  COM  MISSION  KR.  I).,  you  not  think  the  fact  that  you 
are  carrying  such  a  larpfe  amoiiiii  ol'  insurance  shows  that  your 
|)oliey-hold€rs  should  he  protected?  I  only  pick  out  your  Com- 
pany because  I  have  not  gone  over  the  other  policies,  and  because 
you  take  the  position  that  any  kind  of  a  contract  cam  be  issued 
by  you;  that  you  have  the  option  of  inserting  in  the  contract  a 
provision  that  you  will  give  a  paid-up  insurance  in  six  months. 
I  disagree  with  you,  and  with  any  other  Company  which  stands 
in  that  position. 

MR.  THOMAS.  All  T  ask  is  that  we  will  be  treated  the  same 
as  those  Companies  that  will  be  found  to  be  in  the  same  position. 

TIIK  COMMISSIOXKR.  I  should  dislike  to  think  that  any 
other  treatment  would  be  given  vou  bv  this  office. 

MR.  TPIO]\IAS.  If  you  select  my  Company  as  the  particular 
party  guilty  in  this  proceeding,  1  will  have  to  take  proceedings 
to  test  this  question  in  the  courts  at  out  own  expense,  which 
would  be  very  hard  upon  us.  I  nm  only  thinking  what  my  home 
office  will  say.  They  will  j;ay.  "How  did  you  get  along  with 
Clunie  so  that  he  jumped  on  you  and  no  one  else?"  If  you  in- 
sist upon  taking  that  position,  I  shall  be  very  sorry.  We  have 
been  friends  a  great  many  years. 

THE  COMMISSIONER.  The  only  reason  I  make  this  state- 
ment is  because  you  have  appeared  before  me  and  have  argued 
the  position  thoroughly,  and  it  is  due  to  you  to  say  how  I  feel  in 
the  matter. 

MR.  RANKIN.  Are  there  any  other  policies  of  that  char- 
acter? 

MR.  THOMAS.     Yes.  the  E(|uitable  and  the  Home  Life. 

THE  COM. MISSION  EH.  They  arc  in  the  same  position 
you  are  in.  I  do  not  pick  oirt  the  Mutual  Life.  I  say  to  all 
Companies  who  have  such  provisions,  I  do  not  believe  it  was  the 
intention  of  the  Legislature  that  they  can  forfeit  the  right  of  the 
policy-holder  to  his  reserve. 

MR.  THO^IAS.  I  claim,  as  far  as  the  strict  compliance  with 
the  statute  is  concerned,  the  new  policies  of  the  New  York  Life 
and  the  Pacific  Mutual  are  the  only  ones  that  comply  strictly 
with  the  statute,  in  your  construction  of  it. 

THE  COMMISSIONER.  I  agree  with  you  Mr.  Thomas.  u^k>u 
that.  When  it  coma<  to  a'questiou  urged  upon  me  as  to  the  effect 
of  any  such  action  on  the  part  of  the  Insurance  Commissioner 


200 

of  tlie  State,  I  thin'k  as  far  as  T  have  disieretion,  I  ought  to  exer- 
cise it  against  revoking  a  license.  Where  I  can  see  that  the  rights 
of  the  policy-holder  are  not  absolutely  forfeited,  I  should  wait 
until  the  next  Legislature  acts.  If  it  does  not  act  and  does  not 
take  any  steps  under  this  Act,  it  will  not  be  permitted  to  stand 
in  its  present  condition,  and  I  shall  act  upon  my  constiruction  of 
the  Act,  such  as  I  believe  to  be  the  lawful  one.  I  take  this  staaid 
because  I  do  not  wish  it  understood  that  the  incumbent  of  the 
ollice  of  Insurance  Commissioner  wants  to  wantonly  injure  or 
destroy  the  Insurance  Companies  of  the  country,  because  I  do 
not.  At  the  same  time,  I  say  frankly  to  you  that  any  Company 
that  absolutely  forfeits  the  right  of  a  policy-holder  in  the  reserve 
that  has  been  accumulated  for  years,  because  he  does  not  apply 
in  three  months,  does  not  appeal  to  me  as  a  Company  that  is  en- 
titled to  any  discretion  or  favor  of  this  Department  of  the  State 
Government,  and  it  shall  not  have  it. 

ME.  THOMAS.  Let  me  make  this  offer:  Would  you  be  will- 
ing to  leave  the  Mutual  Life,  the  Home  Life,  and  the  Equitable 
in  the  same  condition  until  the  next  Legislature  meets,  provided 
we  change  our  policies? 

THE  COMMISSIONER.  I  a.'^ked  yon  to  do  that,  and  I 
understood  they  all  said  they  would  not  eliange  their  policies. 

MR.  THOMAS.  No.  You  wanted  to  know  if  it  would  be 
possible  to  amend  the  policies  so  as  to  give  both  automatic  term, 
and  paid-up.  I  am  now  offering  to  recommend  to  the  home 
Company  that  they  issue  automatic  paid-up  policies  without 
demand. 

THE  COMMISSIONER.  Provided  during  the  term  this  law 
has  been  in  effect,  that  no  citizen  of  the  State  has  suffered,  and 
if  there  are  any  who  have  suffered,  that  the  Company  make  it 
good  to  them? 

MR.  DONNELS.  All  the  other  companies  come  in  under  the 
same  category.    They  have  done  it  only  recently. 

THE  COMMISSIONER.  In  response  to  that  suggestion  I 
say  to  you  that  any  company  to  whom  I  make  this  concession  of 
waiting,  would  be  put  under  the  same  rule.  If  any  policy-holder 
of  the  State  has  suffered  by  reason  of  this,  before  I  would  hold 
off  from  refusing  to  revoke  the  license,  I  should  insist  that  they 
put  the  policy-holder  in  the  same  position.    If  you  know  of  any 


201 

company  which  has  done  that,  I  think,  in  fairness  to  the  Com- 
missioner, you  ought  to  have  that  understood. 

Mil'.  I)0kiVP]LS.    Tlie  Mutual  Benefit  and  the  Union  Mutual 
of  Maine  are  the  only  companies. 

TllK  COMMISSrONl<:R.  I  want  to  say,  in  regard  to  that, 
1  am  still  of  the  opinion  that  my  reading  of  the  law  is  the  cor- 
rect one.  I  am  willing  to  go  further.  I  am  willing  to  recognize 
the  fact  that  this  law  has  been  on  the  hooks  since  1880,  an<l 
that  the  Commissioners  in  the  past  have  tacitly  approved  of  the 
policies  that  have  been  issued  by  the  companies.  While  I  am 
willing  to  go  to  that  extent,  I  say,  no  matter  whether  the  Com- 
missioners in  the  past  have  overlooked  the  rights  of  the  policy- 
holders or  not,  I  do  not  int-end  to.  I  am  not  going  to  require 
from  the  companies  the  payment  of  this  extended  insurance.  If 
there  is  any  case  where  any  policy-holder  since  1880  has  suffered, 
and  has,  by  reason  of  the  expiration  of  five  or  six  months,  lost 
his  rights  to  paid-up  insurance,  the  ruling  of  this  department 
will  be  that  the  company  has  forfeited  its  right  to  do  business 
in  this  State.  If  the  company  is  willing  to  return  to  the  policy- 
holder what  he  is  entitled  to,  I  will  withhold  the  revocation  of 
the  license,  I  will  exercise  a  -discretion  to  that  extent  unless  the 
courts  prevent  me.  As  far  as  Mr.  Thomas's  companies  are  con- 
cerned, and  the  other  New  York  companies,  if  they  axe  willing  to 
do  the  same  thing,  and  are  willing  to  make  good  to  the  policy- 
holder in  the  past,  I  would  not  revoke  their  license.  All  I  want 
to  do  is  to  protect  the  policy-holder,  and  I  think  they  need  more 
protection  than  the  companies  do.  The  companies  are  always 
represented  by  general  managers  and  agents,  and  the  policy- 
holders of  the  State  are  never  represented  by  anyone. 

MR.  RHODES.  "WTiere  you  find  the  policy  is  in  such  a  shape 
that  there  is  this  automatic  feature  of  the  term  policy — 

THE  CO]\BnSSIONER.  If  that  has  been  there  since  1880, 
and  Mr.  Donnels  says  some  of  them  have  been  gi\ang  it  only 
since  recent  years — 

j\IR.  RHODES  (Continuing). — then  you  would  not  feel  your- 
self called  upon  to  revoke  the  license  because  they  had  not  the 
second  clause? 

THE  COM:\rTSST()NER.  Not  until  the  Legislature  meets. 
If  the  next  Legislature  permits  this  clause  to  stand,  and  I  am 


202 

the  incumbent  of  this  office  when  it  adjourns,  I  shaW  adhere  to 
my  ruling.     You  have  all  had  fair  warning. 

ME.  THOMAS.  I  should  like  to  ask  a  question.  I  should  like 
to  know  how  much  time  I  will  have  to  consult  with  the  home 
office  of  the  Mutual  Life,  to  ascertain  if  they  will  immediately 
follow  your  suggestion. 

THE  COMMISSIONER.  I  will  allow  you  a  reasonable  time. 
I  will  not  decide  this  matter  for  a  reasonable  time.  Mr.  Ben- 
nett has  to  have  this  record  written  up. 

]\fR.  THOMAS.  I  recognize  the  first  ])art  of  your  suggestion 
about  automatic  insurance.  When  it  comes  to  compensating 
those  who  may  have  forfeited  for  want  of  demand,  thai,  is  a  mat- 
ter for  the  companies'  actuaries  to  look  into  rather  than  the 
agents  or  law  officers.  I  do  not  know  but  what  it  might  require 
a  great  deal  of  work  and  expense  to  ascertain  who  those  are. 
They  would  have  to  go  over  every  single  policy  issued  for  seven- 
teen years. 

THE  COMMISSIONER.  I  demanded  that  list  and  it  was  re- 
fused me.    I  think,  as  I  construe  the  law,  I  am  entitled  to  it. 

MR.  THOMAS.  I  told  you  it  would  cost  $10,000,  and  would 
take  six  months  to  get  ready. 

THE  COMMISSIONER.  Under  the  law,  I  think  I  am  enti- 
tled to  it. 

MR.  MUNSELL.  It  was  a  very  proper  request  to  ask  for 
copies  of  the  class  of  policies  issued  since  1880. 

THE  COMMISSIONER.  I  was  told  it  would  inconvenience 
the  company  very  much,  and  would  become  a  record  that  would 
be  accessible  to  all  the  competing  agents.  I  saw  a  great  deal  of 
force  in  that  suggestion  and  did  not  urge  my  request. 

MR.  RANTKIN.  The  Commissioner  exempts  all  companies 
which  will  go  over  all  their  policies  since  1880  and  ascertain 
whether  any  of  the  assured,  during  that  time,  have  forfeited  their 
rights  to  paid-up  insurance  or  extended  insurance  on  those 
classes  of  policies  not  exempt  from  the  operation  of  this  statute. 

THE  COMMISSIONER.  Yes;  and  if  there  are  any,  they 
must  be  restored. 

MR.  THOMAS.     Under  your  constnjction? 

THE  COMMISSIONER.  No;  I  am  wilKng  to  take  Mr.  Ran- 
kin's and  Mr.  Rhodes's  construction.  I  understand  that  this 
matter  is  now  submitted. 

/ 


UNIVERSITY  OF  CALIFORNIA  AT  LOS  ANGELES 

THE   UNIVERSITY  LIBRARY 

This  book  is  DUE  on  the  last  date  stamped  below 


AUG  1  3r. 
FEB  5     1951 . 


m  ^ 


%  \95A 


Form  L-W 
20m-l,'42(851JO 


mofr. 


'j€saiik 


EG 
LaSO?   JLalifornia- 

C2A2     Dept.    of   invest- 
~1B98     ment.  .  pj. .vis ion 

of  insurance  - 


AA    000  589  253    4 


Proceedings   in  the  mat- 
^^  of  the  iinterpreta- 
tion  of  sficitlon^45Q  or 

the     Civil      nnt\a     r.P     rolnW- 


HG 
8907 
C2A2 
1898 


m^fmm^m^mBi^ 


